Deck 11 – Duration Basics · Flashcards

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

If a bond has modified duration of $6$ , what is the approximate percentage price change for a $50$ bps rise in yield?

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Answer

About $- 3%$ .

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Question

How is portfolio duration computed from individual bond durations?

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Answer

As the value-weighted average of bond durations.

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Question

What is the approximate bond price effect of a yield increase using modified duration?

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Answer

$%Δ P \approx - M o d D u r \times Δ Y T M$ .

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