Why is is so that effective Duration is used for bonds with options while modified duration can be used with no option bond.
I understand it is something related to curve duration and yield duration. But I just cannot get Why?
Also do we expect to see questions on calculating Macaulay duration in the exam? That formula is dreadful. Or can we use the theory of duration which says “it is the time in which you get your initial investment back” to calculate Macaulay duration step wise. Continue reading