Interest Rate Risk Flashcards
1
Q
What does Duration measure?
A
It measures the weighted average time to receive loan
cash flows
Time value of money
It weighs time at which CFs are received by importance in PV terms
2
Q
What does Duration account for?
A
Accounts for both timing of cash flows and size of those payments
3
Q
What is Duration?
A
Duration is weighted average time to maturity on investment
4
Q
What is the general formula for duration?
A
Macaulay’s duration
5
Q
What are the features of Duration?
A
Features of Duration:
- Increases with maturity of fixed-income security at decreased rate
- Decreases as yield on security increases
- Decreases as coupon or IR payment increases
6
Q
A
