I could not understand the following: Schweser SS15 P29: Duration of zero coupon bond is approximately equal to the years to maturity, and duration of a floater is equal to the fraction of the year until the next reset date. Isn’t Duration = - %change in bond price/yield change in %? So how would that translate into the statement above?
Anyone?
young money
what??
jimmykaw, you are correct. Duration is %change in bond price per % change in yield. But there is another loose definition of duration as number of years to maturity. I dont think CFA is going to ask any question on having to calculate duration based on this definition. But this is rather to undersand the concept that: longer the maturity period of a bond, more is the interest rate risk on it and thus more Duration.
jimmykaw Wrote: ------------------------------------------------------- > what?? young mullah baby.
Jimmy this is correct for FRNs. Duration is to next reset period because in a normal market it is likely to have some sort of event at that time. Our portfolio management system was not doing this and we reported it as a bug that they have since fixed. I don’t know if this is a new convention or if it’s one of those things that has disagreement but the concept is accurate.