57 Yield Based Bond Duration

Question 1

Macaulay duration definition

Answer 1

The weighted average time to receive a bond’s cash flows

Question 2

Modified duration definition

Answer 2

A multiplier to expected changes in YTM used to estimate approximate changes in bond price

Question 3

Approximate price change

Answer 3

-Mod Dur x Change in YTM

Question 4

Approximate modified duration

Answer 4

(V_- + V_+)/(2 x V_0 x Change in YTM)

Question 5

Money duration formula

Answer 5

• Mod Dur x Change in YTM x bond price

Question 6

Money duration

Answer 6

Estimates the approximate change in value for a given change in yield

Question 7

Price value of a basis point

Answer 7

The change in value if the YTM changes by one basis point

Question 8

Interest rate consequence

Answer 8

1) Long maturities have higher risk
2) Lower coupons have higher risk
3) Lower YTM have higher risk