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Similarities in both values and definitions of Macaulay duration versus Weighted Average Life can lead to confusing the purpose and calculation of the two. [12] For example, a 5-year fixed-rate interest-only bond would have a Weighted Average Life of 5, and a Macaulay duration that should be very close.
The duration of an equity is a noisy analogue of the Macaulay duration of a bond, due to the variability and unpredictability of dividend payments. The duration of a stock or the stock market is implied rather than deterministic. Duration of the U.S. stock market as a whole, and most individual stocks within it, is many years to a few decades.
Bond duration Bond duration is the weighted-average time to receive the discounted present values of all the cash flows (including both principal and interest), while WAL is the weighted-average time to receive simply the principal payments (not including interest, and not discounting). For an amortizing loan with equal payments, the WAL will ...
Duration, Convexity, and Other Bond Risk Measures. Frank J. Fabozzi Series. Vol. 58. John Wiley and Sons. ISBN 9781883249632. Mayle, Jan (1994), Standard Securities Calculation Methods: Fixed Income Securities Formulas for Analytic Measures, vol. 2 (1st ed.), Securities Industry and Financial Markets Association, ISBN 1-882936-01-9. The ...
The modified Dietz method [1] [2] [3] is a measure of the ex post (i.e. historical) performance of an investment portfolio in the presence of external flows. (External flows are movements of value such as transfers of cash, securities or other instruments in or out of the portfolio, with no equal simultaneous movement of value in the opposite direction, and which are not income from the ...
The need for day count conventions is a direct consequence of interest-earning investments. Different conventions were developed to address often conflicting requirements, including ease of calculation, constancy of time period (day, month, or year) and the needs of the accounting department.
Mean time between failures (MTBF) describes the expected time between two failures for a repairable system. For example, three identical systems starting to function properly at time 0 are working until all of them fail.
Suppose a new 5 year FRN pays a coupon of 3 months SOFR +0.20%, and is issued at par (100.00). If the perception of the credit-worthiness of the issuer goes down, investors will demand a higher interest rate, say SOFR +0.25%. If a trade is agreed, the price is calculated. In this example, SOFR +0.25% would be roughly equivalent to a price of 99.75.