linear in the interest rate changes plus an error term which is at least quadratic. As a first derivative it provides a linear approximation. Fabozzi Series, 58, John Wiley and Sons, isbn Mayle, Jan (1994 Standard Securities Calculation Methods: Fixed Income Securities Formulas for Analytic Measures, 2 (1st. Macaulay Duration uses both principal and interest when weighting cash flows. The original 100 invested will fall to roughly.90.

1 2 3, the dual use of the word "duration as both the weighted average time until repayment and as the percentage change in price, often causes confusion. The average duration of the bonds in the portfolio is often reported. First, consider the case of continuously compounded yields. Key rate durations might be defined, for example, with respect to zero-coupon rates with maturity '1M '3M '6M '1Y '2Y '3Y '5Y '7Y '10Y '15Y '20Y '25Y '30Y'. Average duration edit The sensitivity of a portfolio of bonds such as a bond mutual fund to changes in interest rates can also be important.

A bond with positive convexity will not have any call features -.e. The annuity has the lowest sensitivity, roughly half that of the zero-coupon bond, with a modified duration.72. It gives the dollar variation in a bond's value per unit change in the yield. (1993 Options, Futures, and Other Derivative Securities (Second. But it has a cash flows out to 10 years and thus will be sensitive to 10-year yields.