Deck 11 – Duration Basics · Flashcards

Question

How do you compute PVBP from modified duration and full price?

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Answer

$P V B P = M o d D u r \times F u l l P r i ce \times 0.0001$ .

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Question

For otherwise similar option-free bonds, what happens to duration when yield increases?

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Answer

Duration generally decreases.

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Question

How is Macaulay duration calculated from a bond's cash flows?

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Answer

$M a cD u r = \frac{\sum t \times P V ( C F _{t} )}{P _{f u l l}}$ .

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Question

For otherwise similar bonds, why does a higher coupon usually reduce duration?

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Answer

More cash is received earlier, shortening the weighted average time.

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Question

How do you compute PVBP from modified duration and full price?

Tap to flip

Answer

$P V B P = M o d D u r \times F u l l P r i ce \times 0.0001$ .

Tap to flip back

Question

For otherwise similar option-free bonds, what happens to duration when yield increases?

Tap to flip

Answer

Duration generally decreases.

Tap to flip back

Question

How is Macaulay duration calculated from a bond's cash flows?

Tap to flip

Answer

$M a cD u r = \frac{\sum t \times P V ( C F _{t} )}{P _{f u l l}}$ .

Tap to flip back

Question

For otherwise similar bonds, why does a higher coupon usually reduce duration?

Tap to flip

Answer

More cash is received earlier, shortening the weighted average time.

Tap to flip back