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elearning > Duration

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Learn about the following:

What duration is. How duration is calculated. What duration is used for. The strengths and weaknesses of duration.

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Course Summary

Duration menuDuration cash flowsDuration calculation

Duration useDuration hedge ratiosDuration weakness

  • 45 minutes
  • 6 question multiple choice test
  • What duration is
  • How duration is calculated
  • What duration is used for
  • The strengths & weaknesses of duration

Duration - the details

1. Duration-what it is

  • Who uses it
  • Misconceptions
  • How it is calculated, example
  • Modified duration
  • Link to interest rate and basis point value
  • Zero coupon bonds

2. Using duration

  • How a fund manager uses duration
  • Targeting duration
  • How dealers use duration
  • Simple hedge ratios
  • Changes in hedge ratios-convexity

3. Summary

4. Test

Related Documents

Registration RequiredDuration - how it is used 100% relevant

13th February 2010

Duration measures interest rate risk. Duration can therefore be used to control this risk. In the following "duration" refers to modified duration. How would a fund manager use duration? He (or his investment committee) would target the duration for the investment portfolio. The duration of the portfolio would need to suit the investment horizon. If 10 years is considered too risky and 1 year does not appropriately reflect the risk appetite the duration target could be set between 3 years and 5 years. What is the effect of this target?

Registration RequiredDuration 100% relevant

10th February 2010

Duration is used to measure interest rate risk. It is the weighted average life of bond's present values and is expressed in years. As an approximation, a financial instrument that has a duration of 1 year will lose 1% of its value for a 1% increase in interest rates. A financial instrument with a duration of 3 years will lose 3% of its value for a 1% increase in interest rates. The greater the portfolio duration the greater the interest rate risk you run.

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