Coupon effect bonds

You can check your answers with the interactive app on the following slide. All bonds have annual payments in the interactive app. In terms of percent, we can say:. An Introduction to Duration.


Duration is Approximate Duration is a linear approximation of a nonlinear relationship. Duration is more accurate as the change in the interest rate becomes smaller. Duration can increase or decrease given an increase in the time to maturity but it usually increases.

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You can look at this relationship in the upcoming interactive 3D app. Average of Time Payments are Received Duration can be thought of as the weighted average of when the bondholder receives payment. This will give you an intuitive understanding of how these variables affect duration. Interactive App With the following app, you can set the maximum yield-to-maturity, and time to maturity, and see the resulting 3D duration surface.

You can move the 3D surface around, and zoom in and out, with your mouse. Can you see the case where duration is decreasing with an increased time to maturity?

Your Answer

Macaulay Duration From our definition above, we can make the following observations: Duration cannot exceed the number of periods to maturity of the bond. The Duration of a zero-coupon bond is the number of years until maturity. You can also use the following app to see duration decrease when maturity increases. Primary Bond Markets 3.

Secondary Bond Markets. Sovereign Bonds. Non-Sovereign Bonds 5. Quasi-Government Bonds 5. Supranational Bonds. Corporate Debt 6. Bank Loans and Syndicated Loans 6. Commercial Paper 6. Corporate Notes and Bonds. Structured Financial Instruments 7. Capital Protected Instruments 7. Yield Enhancement Instruments 7.

Participation Instruments 7.

Credit Risk

Leveraged Instruments. Retail Deposits 8. Short-Term Wholesale Funds 8.

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