A Ford Motor Co. coupon bond has a coupon rate of3.1?%,a face value of $1,000?,and pays annual coupons. The bond will mature in 4 years. The? bond's yield-to-maturity is5.9?%.
What is this? bond's Macaulay Duration? (MacD)?
?(Hint: Covered in Chapter 7 slides 43 and 44.
Step? 1: Find the coupon amounts and draw the cash flow timeline.
Step? 2: Compute the? bond's price using Eq.? 7.10, which discounts each cash flow one by one from Step 1 at the? bond's yield-to-maturity.
Step? 3: Multiply each cash? flow'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).
MacD of the bond is ___ years.