Query - Effective Duration

Avishek

New Member
Good Morning David,

Thanks for the previous explanation. The spreadsheets are providing a very high level of interpretation to the concepts.

I have a new query on Effective Duration today. In the Fixed Income Video 1, @ 71.59 minutes, I have understood the concept - but failed to generate the value of V_580 bps and V_620 bps. How did you calculate the values as 864.86 and 837.85?

Please help me understand this small part. Other than that, everything is fine in this LOS.

Thanks, Avi
 

David Harper CFA FRM

David Harper CFA FRM
Subscriber
Good morning Avi,

Thanks for f/back on spreadsheets.

The effective duration is mostly a repricing exercise. In the movie example, I just selected 20 bps as the shock; the shock is a user choice. It could be 10 bps, 50 bps, etc. The results are fairly similar.

So, then the numerator in effective duration "reprices" the same bond at 600 + 20 bps and 600 - 20bps

=PV(5.8%/2, 10*2, $1000*4% coupon/2, $1,000 par) = $864.86 and
=PV(6.2%/2, 10*2, $1000*4% coupon/2, $1,000 par) = $837.85

corresponds of course to:
N=10*2, I/Y=5.8%/2, PMT=$1000*4% coupon/2, FV=$,1000 and CPT PV

Here is underlying spreadsheet for this LO:
EditGrid LO 23.3

Thanks,
David
 

Avishek

New Member
Thanks David!

That's exactly what I was calculating but unfortunately wasn't getting the matching figure as yours. Have reset the calculator this time by clearing the TVM memory and it seems to be fine now.

Once again... the spreadsheet is great. Will get back with more genuine queries this time.

Regards, Avi
 
Top