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: 1.7 1.8 1.9

First, 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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Question Of The Week - Fixed Income (2) - CFA Level 1

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This topic has 3 replies, 3 voices, and was last updated Aug-188:18 am by AdaptPrep.

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- AdaptPrep
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  28 Jul 2018 at 8:10 pm
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  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:
  - 1.7
  - 1.8
  - 1.9
- rsparks
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  30 Jul 2018 at 1:07 am
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  It’s just the time weighted yield to maturity for each of the zero coupon bonds right?
- vievkgoel
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  01 Aug 2018 at 5:08 am
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  mn wuhq hwepew ewur uewero we ewwe
- AdaptPrep
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  01 Aug 2018 at 8:18 am
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  First, we must calculate the cash flow yield. This statistic is calculated just like the IRR:
  
  504.13 = 100 / (1 + r) + 500 / (1 + r)^2
  
  r = 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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