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Up1
Ron Wong has a portfolio with two zero-coupon bonds. One pays $100 at time 1. The other pays $500 at time 2. The market value of Ron’s portfolio is $504.13. The Macaulay duration of Ron’s portfolio is closest to:
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Up5First, we must calculate the cash flow yield. This statistic is calculated just like the IRR:504.13 = 100 / (1 + r) + 500 / (1 + r)^2r = 10%The Macaulay duration is the weighted average of time to receipt of each payment, discounted at the cash flow yield:MacDur = [1(100) / 1.1 + 2(500) / 1.1^2] / (100 / 1.1 + 500 / 1.1^2) = 1.82
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Up0
It’s just the time weighted yield to maturity for each of the zero coupon bonds right?
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Up0
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