Macaulay duration = [tC/(1+y)t + nM/(1+y)n/P] t = 1 to n t = Period in which coupon is received C = Semiannual coupon payment = (10% x $ 1000)/2 = $ 50 y = Periodic yield to maturity = 9 % /2 = 4.5 % n = Number of periods = 5 years x 2 = 10 M = Maturity value = $ 1,000 + $ 50 = $ 1,050 P = Market price of bond = $ 1,000 (Assumed) Period Cash Flow Period x Cash Flow PV of $1 @ 4.5 % Present Value of Cash Flow 1 $50 $50 0.956937799 $47.85 2 $50 $100 0.915729951 $91.57 3 $50 $150 0.876296604 $131.44 4 $50 $200 0.838561344 $167.71 5 $50 $250 0.802451047 $200.61 6 $50 $300 0.767895738 $230.37 7 $50 $350 0.734828458 $257.19 8 $50 $400 0.703185127 $281.27 9 $50 $450 0.672904428 $302.81 10 $1,050 $10,500 0.643927682 $6,761.24 Total Macaulay duration = $6,761.24 / $1,000 = 6.76 years Period Cash Flow Period x Cash Flow PV of $1 @ 4.5 % Present Value of Cash Flow 1 $50 $50 0.956937799 $47.85 2 $50 $100 0.915729951 $91.57 3 $50 $150 0.876296604 $131.44 4 $50 $200 0.838561344 $167.71 5 $50 $250 0.802451047 $200.61 6 $50 $300 0.767895738 $230.37 7 $50 $350 0.734828458 $257.19 8 $50 $400 0.703185127 $281.27 9 $50 $450 0.672904428 $302.81 10 $1,050 $10,500 0.643927682 $6,761.24 Total Solution Macaulay duration = [tC/(1+y)t + nM/(1+y)n/P] t = 1 to n t = Period in which coupon is received C = Semiannual coupon payment = (10% x $ 1000)/2 = $ 50 y = Periodic yield to maturity = 9 % /2 = 4.5 % n = Number of periods = 5 years x 2 = 10 M = Maturity value = $ 1,000 + $ 50 = $ 1,050 P = Market price of bond = $ 1,000 (Assumed) Period Cash Flow Period x Cash Flow PV of $1 @ 4.5 % Present Value of Cash Flow 1 $50 $50 0.956937799 $47.85 2 $50 $100 0.915729951 $91.57 3 $50 $150 0.876296604 $131.44 4 $50 $200 0.838561344 $167.71 5 $50 $250 0.802451047 $200.61 6 $50 $300 0.767895738 $230.37 7 $50 $350 0.734828458 $257.19 8 $50 $400 0.703185127 $281.27 9 $50 $450 0.672904428 $302.81 10 $1,050 $10,500 0.643927682 $6,761.24 Total Macaulay duration = $6,761.24 / $1,000 = 6.76 years Period Cash Flow Period x Cash Flow PV of $1 @ 4.5 % Present Value of Cash Flow 1 $50 $50 0.956937799 $47.85 2 $50 $100 0.915729951 $91.57 3 $50 $150 0.876296604 $131.44 4 $50 $200 0.838561344 $167.71 5 $50 $250 0.802451047 $200.61 6 $50 $300 0.767895738 $230.37 7 $50 $350 0.734828458 $257.19 8 $50 $400 0.703185127 $281.27 9 $50 $450 0.672904428 $302.81 10 $1,050 $10,500 0.643927682 $6,761.24 Total.