Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Cash flow duration, like effective duration, considers the change in the cash flow due to prepayment with the change in the interest rate. In effective duration, cash flows are calculated using the Monte Carlo method, but in cash flow duration the cash flows are calculate using static methodology. Following are the steps followed to calculate cash flow duration:
Cash flows are calculated based on some prepayment assumptions.
Using the calculated cash flows and the market price (P0), the cash flow yield is computed.
Cash flow yield is then increased by Δ y and the new prepayment rate at that higher cash flow yield is determined from a prepayment model. The prepayment rate would be lower because of the higher yield.
Using this lower prepayment rate, we can arrive at cash flow and the value of the cash flow using the higher cash flow yield as the discount rate (P+).
Similarly, cash flow yield is decreased by Δy and the new payment rate at lower cash flow yield is calculated. Then, using this higher prepayment rate, cash flow and the value of the cash flow using the lower cash flow yield as the discount (P-) is calculated.
Once we calculate P+ and P-, we can calculate the duration using the general formula of duration i.e.,
Duration =
When we compare modified duration, effective duration and cash flow duration, modified duration is considered inferior to that of cash flow duration. This is because modified duration ignores the changes in prepayment due to interest rate changes. Cash flow yield is based on naïve assumption about how prepayments may change; in contrast, Monte Carlo simulation model is based on more sophisticated analyses of how the cash flow can change when interest rates change. The effective duration computed using Monte Carlo method is considered superior to cash flow duration.
What factors would you consider in evaluating the political risk related with making FDI in a foreign country? Answer: Factors to be considered as follow: a) The host countr
I have a presentation to give on ''New ways'' Microsoft can improve its ''Partnership Strategies''. Can some one please give some good links or insights into the same.
Day count convention is a system used to determine the number of days between two coupon dates. It is important in calculating accrued interest and present value
The buy down loan is similar to the PAM; however, it is the seller of the property and not the buyer/borrower who places cash in a segregated account so that additional
I need a report on Accounting or Average Rate of Return. Can you please assist me for Accounting or Average Rate of Return report for about 2500 words?
Q. Example on Controlling working capital? Describe how a manufacturing company could control its working capital levels and impact of the suggested control measures. Solut
how to calculate the average inventory of holding
#questionoperating cycle in vegetable growing business in uganda..
Capital Asset Pricing Model (CAPM) Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r
A c quisition Planning and Strategy In the previous section, we discussed about the constraints to successful merger integration. In this section, we will learn how to plan a
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd