For calculating adjusted Macaulay d

For calculating adjusted Macaulay duration, we use the same coupon and price, and compute yield to maturity assuming immediate settlement. We then use this yield to maturity to calculate duration from Eq. (4). The original Macaulay 6 This structure implies that there is a greater chance of default as bonds approach maturity and Pt decreases. Alternative possibilities for default are presented in Rodriguez (1988) and Van Home (1979).
7 We are grateful to a referee for bringing our attention to this point.
8 Note that P0 = l. This means that the firm is born in the current period, end of period zero, and survives for at least one period. At the end of period 1, Pl = pl < 1, and thus the first coupon is not certain. The probability of survival decreases with time. We are indebted to an anonymous referee for bringing our attention to this point.
9 The zero coupon term structure was arbitrarily generated according to the function 0 It = 8%- [4%/0 + 1)], where the variables are defined in the text.