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.
They are issued in the local market, by a foreign borrower are usually denominated in the local currency. For example, Yankee bonds are USD denominated bon
1. Using ratio analysis, compare your fifth year to the current year and discuss. 2. Compute the expected stock price at the end of the fifth year. Assume your stockholders hav
Calculate the expected rate of return and risk of return
Question 1: i) Discuss the benefits of international diversification and the issue of home country's bias in equity and bonds markets? ii) Explain carefully the currency he
Relationship between Bond Price and Time (If Interest Rates are Constant) The bond price changes as the bond moves closer to its maturity. If the bond is quoted
A futures contract is a contract to purchase (and sell) a particular asset at a fixed price in a future time period. There are two parties for every futures contract - the seller o
(a) The term "financial reporting" incorporates not only financial statements, but also includes other means of communicating financial and non-financial information. Financial rep
Expects the per capita expenditure: A township expects its population of 5,000 to grow annually at the rate of 5%. The township currently spends $300 per inhabitant, but, as t
Exchange Rates The prices at which one country's currency can be changed into that of other country. Although perceptions in the currency markets of the privacy of a count
Optimal Portfolio Selection: The next step involves selecting the optimal portfolio. The strategic asset allocation will have overriding importance in pension fund management.
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd