"Duration of EQUITY", V4 p. 109

It seems that there is some naming discrepancy below. Can you help? * PORTFOLIO RATE OF RETURN * Duration of EQUITY (duration of portfolio) ------------------------------------------------------------------------------------------------ Rp = (PORTFOLIO RATE OF RETURN) = (Profit on borrowed funds + Profit on equity)/(Amount of equity) =[B\*(rF-k)+E\*rF]/E =rF +(B/E)*(rF-k) (V4 p. 108). ------------------------------------------------------------------------------------------------ With DA denoting the duration of the assets (the bond portfolio) and DL the duration of the liabilities (borrowings), the duration of EQUITY, DE, is given by DE =(DA*A-DL*L)/E (V4 p. 109). ------------------------------------------------------------------------------------------------


not sure what the question is?

I can understand that the portfolio rate of return is Rp = rF +(B/E)*(rF-k). But I couldn’t understand why the following DE is called “the duration of EQUITY”. DE =(DA*A-DL*L)/E According to the convention for Rp calculation, shall the above duration be called “the duration of the portfolio”?

Think of equity in a balance sheet framework, Assets = Liabilities + Equity. Duration of equity being duration of the assets in the portfolio that you own, and are not borrowing in order to own. You’re using “equity” to purchase them.

Thanks. There is an EOC question which has been posted on another thread. http://www.analystforum.com/phorums/read.php?13,1249946 I’ll go there to continue the discussion.