1. avatar says

    Hi sir.This one is regarding MACAULAY DURATION . in bpp text it says when yield decreases duration increases but in an example i did(opentuition notes.ch8.Example4) lowering the yield has now effect on the duration.Why is that ?

  2. avatar says

    Hi sir.
    In Macaulay duration limitation you wrote that bond prices decreases as interest increases but using formula P0 = I / Kd
    as we increases interest the market value increases?
    Please help me with this how does interest increases decreases bond market price

    Thank You :)

    • Profile photo of John Moffat says

      It is investors who fix the market value of a bond from day to day, and it determined by the receipts that they are expecting and the rate of return that they require.

      Here is a very simple example:
      Suppose there are 5% bonds. On a $100 dollar bond, the interest is fixed at $5 per year. Suppose someone is thinking of buying a bond today on the stock exchange, but today they require return of 10% on their investment (maybe because banks are paying interest of 10%). Since the will only be getting $5 a year, they will only be prepared to pay $50 – because then the $5 a year will be a 10% return.

      The higher the required return, the lower the market value will be on the stock exchange.

  3. avatar says

    In the revised notes of chapter 8- the valuation of debt finance and macauley duration
    Example 2 and 3, where did you get $110 as redemption of the bonds??
    I got $110 as i assumes the nominal value being $100 and i added 10% to it?
    Please explain??

    • Profile photo of John Moffat says

      This is not a mistake at all – we do not claim to have lectures on every topic for any of the papers. All of the topics are covered in the Course Notes and in your Study Text (it is made very clear throughout this website that Course Notes are not meant to replace Study Texts).

      We provide this website free of charge in our spare time. Lectures are added as time permits.

      As to saying that you cannot rely on the lectures – of course you can rely on the lectures. But again, we do not claim to have lectures on every topic. If you want lectures on every topic immediately then you will need to pay to attend some course somewhere.

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