Duration = minimum time bond requires to give yield equivalent to market rate of return"

e.g G-Sec 30

Worksheet 5

Q1
PV0 PV- PV+
coupon 3.75% 3.75% 3.75%
Maturity date 8/15/2041 8/15/2041 8/15/2041
Settlement 10/15/2020 10/15/2020 10/15/2020
yield to maturity 0.0514 0.0509 0.0519
actual/actual 61/184
Period

PV (flat price- PV0) 82.345927043889 82.967530305

PV- 82.91 83.5287
PV+ 81.789791578477 82.411394839
ACCRUED Interest 0.617143755233 0.62160326
0.6177478051652
Duration
Macaulay Duration 13.465230811252
Approx. Modified Duration 13.466311882752

MD = AMD*(1+r)

MD (from AMD) 13.812396098139

Q2

Effective Duration ((PV-)-(PV+))/(2*Delta Curve* PV0)

Eff. Dur. = 5.4907677356657

Effective duration is useful in asset allocation when you have pirtfolio of both assets
market rate of return"

ave pirtfolio of both assets and bonds