Last edited by Tygoshicage
Friday, May 8, 2020 | History

1 edition of The many uses of bond duration found in the catalog.

The many uses of bond duration

by Frank K. Reilly

  • 44 Want to read
  • 13 Currently reading

Published by College of Commerce and Business Administration, University of Illinois at Urbana-Champaign in [Urbana, Ill.] .
Written in English

    Subjects:
  • Investment analysis,
  • Bonds

  • Edition Notes

    Includes bibliographical references (p. 48-51).

    Other titlesBond duration.
    StatementFrank K. Reilly, Rupinder S. Sidhu
    SeriesFaculty working papers -- no. 597, Faculty working papers -- no. 597.
    ContributionsSidhu, Rupinder S. joint author, University of Illinois at Urbana-Champaign. College of Commerce and Business Administration
    The Physical Object
    Pagination51 p. :
    Number of Pages51
    ID Numbers
    Open LibraryOL24773556M
    OCLC/WorldCa5435621

    Start studying Finance Midterm: True/False Qs. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Search. The longer a bond's duration, the greater its volatility. True. market value is usually greater than book value. True. This process uses the Macaulay duration model, which is a formula that accounts for a bond's interest rate, payment rate and time until maturity. The result of a Macaulay duration calculation for an individual bond, or a full portfolio of bonds, is a number that represents how many years it will take for the investment to produce returns that.

    A bond's duration will determine how its price is affected by interest rate changes. The reverse is also true. Using the example above, let's assume that when you sell your bond, new bonds are. Learn about duration and how investors and investment managers use it to build portfolios and manage risk.

    Ian Fleming wrote 12 James Bond novels and 9 short stories published in two collections. Initially the Eon series of films were fairly straight adaptations of the novels but over time they tended to deviate more and more. Dr No () fairly fai. Bond duration is a measure of a bond's risk profile and is critical to understand for any investor with exposure to government or corporate bonds. Low- and intermediate-duration bonds represent two distinct risk classes for the bond investor. As such, their merits and shortcomings must be carefully evaluated.


Share this book
You might also like
Minutes

Minutes

Midnight movies

Midnight movies

Fifteenth census of the United States: 1930.

Fifteenth census of the United States: 1930.

World Full DIV

World Full DIV

Laboratory manual for chemical and bacterial analysis of water and sewage

Laboratory manual for chemical and bacterial analysis of water and sewage

intermixture of races in Asia Minor

intermixture of races in Asia Minor

Symposium on basic mechanisms of fatigue

Symposium on basic mechanisms of fatigue

The Managerial challenge

The Managerial challenge

Mind-blowing management

Mind-blowing management

Websters calendar, or, The Albany almanack, for the year of our Lord 1820 ...

Websters calendar, or, The Albany almanack, for the year of our Lord 1820 ...

A woman to blame

A woman to blame

Zone 277

Zone 277

World Record Game Fishes 1991

World Record Game Fishes 1991

Patterns of hospitality in a rural Ulster community.

Patterns of hospitality in a rural Ulster community.

The many uses of bond duration by Frank K. Reilly Download PDF EPUB FB2

Duration is a measure of the sensitivity of the price -- the value of principal -- of a fixed-income investment to a change in interest rates.

Duration is expressed as a number of years. Bond. usesofdurationinbondanalysis(i.e.,itsrelationshiptobondprice volatility)andbondportfoliomanagement (i.e., how it canbeused to "immunize" a bondportfolio).Finallyweconsider the use of duration.

For a standard bond the Macaulay duration will be between 0 and the maturity of the bond. It is equal to the maturity if and only if the bond is a zero-coupon bond.

Modified duration, on the other hand, is a mathematical derivative (rate of change) of price and measures the percentage rate of change of price with respect to yield.

The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More - Kindle edition by Thau, Annette. Download it once and read it on your Kindle device, PC, phones or tablets.

Use features like bookmarks, note taking and highlighting while reading The Bond Book, Third Edition: Everything Investors /5(). The duration of a zero-coupon bond equals time to maturity. Holding maturity constant, a bond's duration is lower when the coupon rate is higher, because of. Duration, Convexity and other Bond Risk Measures offers the most comprehensive coverage of bond risk measures available.

Financial expert Frank Fabozzi walks you through every aspect of bond risk measures from the price volatility characteristics of option-free bonds and bonds with embedded options to the proper method for calculating duration and by:   The maturity of a fixed-income investment is simply how long the instrument lasts.

For example, a year Treasury bond has a year maturity. Duration is a slightly more complicated concept, but it’s very useful for understanding how bonds and other fixed-income investments work. The duration of a bond is the weighted-average period of time before the cash flows involved are received.

For example, a bond with 10 years till maturity and a 7% coupon trading at par to yield 7% has a duration of years. At a yield of 6% (price 14/32), its duration is years. 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 maturity. Chapter 4: Duration of Bonds.

Duration of a bond is a measure often used to assess the risk involved with the bond instrument. It is the effective duration in years or maturity time, in which the bond price is repaid by the internal cash flows.

The greater the duration, the more is the sensitivity to interest rate changes, which in turn means. By definition, duration measures the number of years required to recover the true cost of a bond, considering the present value of all coupon and principal payments received in the future.

The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is the (theoretical) internal rate of return (IRR, overall interest rate) earned by an investor who buys the bond today at the market price, assuming that the bond is held until maturity, and that all coupon and principal payments are made on schedule.

INVESTMENT INDUSTRY ASSOCIATION OF CANADA BONDS: AN INTRODUCTION TO BOND BASICS – 7 Not all bond prices react in the same way to interest rate changes. Usually, the lower the coupon rate, the more sensitive the bond price is to any changes in Size: KB.

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date.

Bond duration is an investment concept that few average investors truly understand, yet it can have a meaningful impact on how your bond mutual fund or fixed income portfolio performs relative to the bond market as a whole. Investors tend to shy away from discussions of bond duration because the underlying math is relatively difficult.

As the table below shows, the shorter a bond’s duration, the less volatile it is likely to be. For example, a bond with a one-year duration would only lose 1% in value if rates were to rise by 1%. In contrast, a bond with a duration of 10 years would lose 10% if rates were to rise by that same 1%.

Conversely, if rates fell by 1%, bonds with a. In many cases, however, this approximation will work well. Plot bond price against yield Duration and Risk Duration, or interest rate bets, can be increased either by investing in securities with longer duration (e.g. year bonds), or by leveraging the portfolio.

Table 1 below compares measures of duration for bonds with maturities varying. Duration problems Created by Pamela Peterson Drake Problem 1 Consider a bond that has a coupon rate of 5%, five years to maturity, and is currently priced to yield 6%.

Calculate the following: Macauley duration Modified duration Effective duration Percentage change in price for a 1% increase in the yield to maturity Problem 2File Size: KB. Macaulay Duration: This type of duration measures the number of years it takes to cover the true cost of a bond Modified Duration: Measures the sensitivity of a bond's price with respect to a bps change in interest rates (For example: If a bond's duration is 5 years, an interest rate change of + bps will result in an approximate 5%.

Most bond investors know that interest rate changes can affect the value of their fixed income holdings. How a bond or bond portfolio’s value is likely to be impacted by. the bond’s duration. In calculating the duration of a bond, we convert the maturity of a given bond to the maturity of an equivalent zero coupon bond.

Then the above formula determines the elasticity. As an example, consider a coupon bond that has a coupon rate of .The modified duration of a bond is the price sensitivity of a bond.

It measures the percentage change in price with respect to yield. As such, it gives us a (first order) approximation for the change in price of a bond, as the yield changes. When continuously compounded, the modified duration is equal to the Macaulay duration.

To account for the fact that bond prices are negative This was.bnddurp also determines the Macaulay and modified duration for a zero coupon bond.

example [ModDuration,YearDuration,PerDuration] = bnddurp(___,Name,Value) adds optional name-value pair arguments.

Examples. collapse all. Find Bond Duration Given Price. Open Live Script. This example shows how to compute the duration of three bonds given their.