Has anyone had any questions about this type of duration calculation? The book says that it is flawed, so why would we need to know this?
it is flawed for bond wd options… just learn the diff b/w modified and maculay.cant recall exactly at this momnet…time to chk my notes…
I thought Modified Duration is derived from Macaulaly Duration and only used for option-free bonds.
Sorry for the confusion. It is flawed for bonds with embedded options and is used only for Option Free bonds. I meant, just learn the diff b/w effective duration and macaulaly duration
I think the formula is along the lines of effective duration = macaulay duration / (1 + YTM). (Or possibly the other way around). Something like that anyways… I’m not going to worry about memorizing this formula, if it pops up on the exam I’ll just play around with the numbers until I find something that works 