What is macaulay duration example

Example: Consider a 2-year coupon bond with a face and redemption value of $100 and a coupon rate of 10% per annum payable semiannually and a yield to maturity of 12% per annum compounded semiannually. Find the Macaulay Duration. The Macaulay Duration is 3.7132 semiannual periods or 1.86 years.

How is Macaulay duration calculated example?

The Macaulay duration is calculated by multiplying the time period by the periodic coupon payment and dividing the resulting value by 1 plus the periodic yield raised to the time to maturity. Next, the value is calculated for each period and added together.

What is Macaulay duration in simple words?

The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price. Macaulay duration is frequently used by portfolio managers who use an immunization strategy.

What is duration of a bond with example?

For example, if a bond has a duration of five years and interest rates increase by 1%, the bond's price will decline by approximately 5%. Conversely, if a bond has a duration of five years and interest rates fall by 1%, the bond's price will increase by approximately 5%.