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A portfolio consists of the following two bonds:$10,000 market value Bond A with duration of 4;$30,000 market value Bond B with duration of 6;Both bonds yield at 10% and make an annual couple payment.What is this bond portfolio’s Macaulay duration?

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Answer:

The bond portfolio’s Macaulay duration is 5.50

Explanation:

According to the following formula

Portfolio duration = weighted duration = (weight of Bond A*Duration of A) + (weight of Bond B*Duration of B)

= ((10,000/40,000) *5) + ((30,000/40,000) *6) = 5.50

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