Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Duration is often referred to as the approximate percentage change in the price for a 1% change in rates. Now, we will see some other definitions or interpretations of duration.
Duration is the "First Derivative"
Duration is also referred to as the "first derivative of the price/yield function". A derivative used in this context is obtained by differentiating a mathematical function. When a bond is written in the form of a mathematical equation, the value arrived at by differentiating the equation for the first time is known as the first derivative. While it is the correct interpretation of duration, this interpretation does not help us to understand the concept of the interest rate risk of a bond. Thus, it is an operationally meaningless interpretation.
Duration is Some Measure of Time
When Macaulay introduced the measure duration he used it as a measure of time for a bond that was outstanding. He defined duration as the weighted average of the time to each coupon and principal payment of a bond. The drawbacks of this interpretation are:
The proper way to interpret a duration is as the price volatility of a zero-coupon bond with a number of years to maturity. For example, when we say that a bond has a duration of 5 years, it means that the bond has the price sensitivity to rate changes of a 5-year zero-coupon bond.
When we explain duration in terms of years, then it is very difficult to understand the duration of some complex securities.
Explain the re-measurement and translation process within FASB 52 of translating into the reporting currency the books of a completely owned affiliate that keeps its books in the l
Predicting Cross-Sectional Returns If the market is assumed to be efficient, all securities should lie along the security market line that relates the expected rate of return t
Q. Process of financing working capital? Working capital policies on the process of financing working capital can be characterised as moderate, conservative and aggressive. A c
Forward Contracts: The origin of forward contracts is lost in history. Some authors suggest that, it was India where these contracts took birth, while some others suggest that
Case Study - Credit-Linked Notes Credit linked notes are assets issued by financial institutions which have exposure to the credit risk of a reference Issuer . These notes pay
What is compound interest? Compare compound interest to discounting. Compound interest takes place while interest is earned on interest and on the original principal of an invest
There are several methods available to forecast yield volatility. But before that, let us look into the calculation of forecasted standard deviation. Assume th
Depository institutions Depository institutions: intermediaries with a important proportion of their funds derived from customer deposits - include commercial banks - savings i
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 240,000 units per year. Components pu
Q. Describe Concepts of finance function ? 1) The finance function in the business task in the providing funds needed by the enterprises on the term that one most favorable in
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd