Macaulay duration and modified duration, Financial Management

Assignment Help:

We can also express Modified duration as follows:

          537_modified duration.png                                                                                    ...Eq. (3)

The expression in the brackets of the modified duration formula is given by equation (3) and is a measure created by Frederick Macaulay in 1938. This measure is known as Macaulay duration. Actually Macaulay duration is nothing but the weighted-average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price. Rewriting the formula of modified duration, we get:

         1438_modified duration1.png


Related Discussions:- Macaulay duration and modified duration

Investigate the functions for horizontal asymptotes, Q. Investigate the fol...

Q. Investigate the following functions for both horizontal and vertical asymptotes, x and y-intercepts, and state the domain and range of each and where the function is increasing

What is the optimal amount of risky assets, Consider a world with two asset...

Consider a world with two assets: a riskless asset paying a zero interest rate, and a risky asset whose return r can take values +10% or -8% with equal probability. An individual h

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Compare diversifiable and nondiversifiable risk, Compare diversifiable and ...

Compare diversifiable and nondiversifiable risk. Which do you think is more important to financial managers in business firms? Diversifiable risk is able to be dealt with by of

Option based valuation approach, When an investor purchases non-calla...

When an investor purchases non-callable or non-putable convertible bonds, he would be buying a non-callable/non-putable straight security and also buying a call o

Calculate the capital charge for the bank, A bank comprises a $500 million ...

A bank comprises a $500 million portfolio of investments and bank credits. The everyday standard deviation of return on this portfolio is .666 %. Capital adequacy standards need th

Define capital rationing, What is capital rationing?  Should a firm practic...

What is capital rationing?  Should a firm practice capital rationing?  Why? The term Capital rationing is the practice of setting dollar limits on what will be invested in new ca

How can we calculate the average inventory, Inventory days (Average in...

Inventory days (Average inventory/Cost of sales) x 365days Average inventory can be arrived by taking this year's and last year's inventory values and dividing by 2 - (Ope

Structure and participation of hedge funds, Structure and Participation of ...

Structure and Participation of Hedge Funds: The typical structure for a Hedge Fund is to facilitate the tax concerns of investors and fund managers. Basically, there are two or

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd