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Compute the macaulay duration

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Reference no: EM133076022

Consider a 10-year Bond A which has a face value $100 and pays coupon every 6 months. The coupon rate is 6% per year, and the next payment is 6 months later. The current yield of the bond is 5%, compounded semiannually (2 compounding periods per year).

(a) Compute the Macaulay duration, D, of Bond A.

(b) Compute the price of Bond A.

(c) Consider another Bond B, whose only difference from Bond A is that the coupon rate of Bond B for the first 10 coupon payments is 2% per year, and the coupon rate for the remaining coupon payments is 7% per year. Suppose Bond A and Bond B have the same price, find the value of r.

Reference no: EM133076022

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