I understand that the desired Macaulay duration for the bond on 15 October 2027 is specified as approximately 2.8843. However, despite multiple attempts, I have been unable to reconcile this figure with the provided parameters.
I have carefully followed the standard procedure for calculating Macaulay duration, adjusting the present values of the coupon payment and principal repayment accordingly. However, the resulting Macaulay duration I obtained does not match the desired value.
Anyone could provide guidance or clarification on how to accurately achieve a Macaulay duration of approximately 2.8843 for the BRWA bond on 15 October 2027? Any additional information or insight you can provide would be greatly appreciated.
KNOWLEDGE CHECK
An analyst is comparing the interest rate risk of the BRWA 3.2% bond
maturing 15 October 2030 to a floating-rate note (FRN) that also
matures 15 October 2030 and has its coupon reset semiannually.
At the last reset, 15 October 2027, the coupon rate of the FRN was 3.2%. The
BRWA bond was priced to yield 3.2% at that same date.
- Complete the following table:
Macaulay duration
BRWA FRN
15-Oct-2027
15-Nov-2027
15-Dec-2027
15-Jan-2028
Money Duration and Price Value of a Basis Point 281
Macaulay duration
BRWA FRN
15-Feb-2028
15-Mar-2028
15-Apr-2028
Solution:
Macaulay duration
BRWA FRN
15-Oct-2027 2.8843 0.0000
15-Nov-2027 2.8002 0.8306
15-Dec-2027 2.7169 0.6667
15-Jan-2028 2.6336 0.4973
15-Feb-2028 2.5502 0.3279
15-Mar-2028 2.4669 0.1694
15-Apr-2028 2.4221 0.0000