We appreciate your visit to On January 1 2014 Tong purchased a ten year bond at par The bond pays semiannual coupons Because Tong is an actuary he enjoys calculating. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
The Macaulay duration of Tong's bond on January 1, 2016, right before receiving the coupon, would be 7.306 years, by adding half a year to the given post-coupon payment duration of 6.806 years.
The question involves the calculation of Macaulay duration for a bond right before a coupon is paid. The Macaulay duration measures the weighted average time before a bondholder receives the bond's cash flows. The given duration after the January 1, 2016 coupon payment is 6.806 years. To find the duration right before the payment, we would add half a year (since it's a semiannual coupon) to account for the coupon payment that is about to be received, because duration is effectively reset after a coupon payment. Therefore, the duration of the bond just before the January 1, 2016 coupon is 6.806 years + 0.5 years = 7.306 years.
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