Bond duration

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Joined: Thu Apr 17, 2014 9:40 pm

Bond duration

Postby devinarastogi84 » Fri May 23, 2014 5:31 am

what will be the formula for modified duration for 0 coupon bond?

MD*= D/ (1+YTM) or MD*= D/(1+(YTM/2))

In a previous coming paper solution, for 0 coupon bond the formula used is D/(1+(YTM/2)). why its YTM/2 when bond is 0 couponed.

It should be for semi annual coupon bond . Please tell me in what case YTM in modified duration will be YTM/2.

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Bond duration

Postby edupristine » Sat May 24, 2014 8:01 am

The formula for modified duration is:
Modified duration = Duration/(1+YTM/2).
Since zero coupon bond are discount bonds, and discount bonds are semi-annual bonds. Hence, the formulas used is for semi-annual bonds.

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