How do coupons change Macaulay duration?

Question

AcadiFi · Accepted Answer

Coupons change Macaulay duration because they change when the investor receives value. Higher coupons move more present value into earlier payment dates, which usually shortens Macaulay duration. Lower coupons leave more value concentrated near maturity, which usually lengthens Macaulay duration.

That is why a zero-coupon bond has Macaulay duration equal to maturity, while an otherwise similar coupon bond usually has a shorter Macaulay duration.

```mermaid
flowchart TD
    A["Same maturity"] --> B{"Cash-flow pattern"}
    B -->|Higher coupon| C["More value earlier"]
    B -->|Lower coupon| D["More value near maturity"]
    B -->|Zero coupon| E["All value at maturity"]
    C --> F["Shorter Macaulay duration"]
    D --> G["Longer Macaulay duration"]
    E --> H["Duration equals maturity"]
```

How do coupons change Macaulay duration?

Master Level I with our CFA Course

Related Questions

Related Articles

Practice Questions