Topic: Fixed Income Securities

Modified Duration of a Bond

Modified duration indicates the percentage change in the price of a bond for a given change in yield. It is a more adjusted measure of Macaulay duration that produces a more accurate estimate of bond price sensitivity. m is the # of compounding period per year. The...

Properties of Duration

Now that we understand what duration is, and how it is calculated, let’s take a look at some of the important properties of duration. Duration of a coupon paying bond is always less than its maturity. For a non-coupon paying bond, the duration is the same as its...

What is Macaulay Duration?

The duration of a fixed income instrument is a weighted average of the times that payments (cash flows) are made. The weighting coefficients are the present value of the individual cash flows. where PV(t) denotes the present value of the cash flow that occurs at time...

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