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A Ford Motor Co. coupon bond has a coupon rate of 5.25.2?%, a face value of ?$1,000 and pays annual coupons. The bond will mature in 4 years. The? bond's yield-to-maturity is 4.74.7?%. What is this? bond's Macaulay Duration? (MacD)?
?(Hint: Not covered in the eText. Check out your class notes and the TopHat note titled? "Bond risk and? duration".
Step? 1: Find the coupon amounts and draw the cashflow timeline.
Step? 2: Compute the? bond's price discounting each cashflow one by one from Step 1 at the? bond's yield-to-maturity.
Step? 3: Multiply each? cashflow's present value from Step 2 with that cash? flow's duration. For? example, the coupon to be paid in 2 years has a duration of 2.
Step? 4: Add up the terms from Step 3 and divide the sum by the? bond's price from Step2. This is the? bond's MacD).
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Reflecting on the various topics discussed throughout the course, describe one concept that will be affected most by the latest developments in health reform.
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