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KIC000055 - Duration Measures IC 2C nC MM 2 a“ 4...

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Unformatted text preview: Duration Measures IC 2C nC MM 2 + a“, 4 ' Macaulayduration [”3’1' {My}: (“J/1' [l+y]" P a r ti :1 0 Modified Duratlon: Mac “0de a 0 1+ y dP l - -1‘ Modified duration =—'—— aw Duration in Years Since we s‘aded with treasuries that pay semi-annually, if we want the dumion expressed in years we just divide by 2. If we have some other cash flow timing it is just divided by the number of times the cash flows are paid per year‘ We could have a mortgagetype security (monthly) or some quarterly cash flow = > Duration in years = Duration in m per|ods per year/ m Aiternate Approach - Take derivative of this formula and divlde by P. “fl“ofiyflmfir C C | I n M— y . —; _ + Modified duration = y 1+ l+y ff P ...
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