Duration

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February 16, 2018 at 11:55 am #437588
herocomesalong
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Good day tutor,

Some past year paper answers define duration as to mean “the time it takes to recover half the repayments of interest and capital of a bond, in present value terms.”

Why is it ‘half’? I thought duration was meant to recover all the interest and capital repayments of a bond..
February 16, 2018 at 3:21 pm #437616
John Moffat
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It is approximately half, but to prove it would take a lot of maths.

It certainly doesn’t recover all of the interest and capital repayments – that would take the whole lifetime of the bond.

Do look at the chapter on this in the free lecture notes.
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