Question
1. Consider a contract that pays out $190 in 6 months, $131 in 12 months, $80 in 18 months, $50 in 2 years. What is
1. Consider a contract that pays out $190 in 6 months, $131 in 12 months, $80 in 18 months, $50 in 2 years. What is this contract's Macaulay duration (in years)? Assume this contract is currently trading at a yield of 5%.
2. Consider an annuity contract that pays out $47 at the end of each of the next four 6-month intervals (payments are to be made 6, 12, 18, and 24 months from today). What is this annuity's Macaulay duration (in years)? Assume this contract is currently trading at a yield of 5%.
3. What is the Macaulay duration in years of a 3% coupon bond with 2 years to maturity and a face value of $100? Assume the bond is trading at a yield of 7%, and that the next coupon payment is to be made exactly 6 months from today.
4. What is the modified duration in years of a 10% coupon bond with 2 years to maturity and a face value of $100? Assume the bond is trading at a yield of 4%, coupons are to be paid semi-annually, and that the next coupon payment is to be made exactly 6 months from today.
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