dyga

Why the duration for a zero is the same as the maturity in years? I have never figured it out since L2 although I memorise it just for the sake of passing the exam. Here is a simple calculation on a zero coupon of maturity 10 years for $100 par. The discount rate, yield to maturity is the same. The various present values for the respective discount rates are:

4.50% 64.3927682
5.00% 61.39132535
5.50% 58.54305794


Duration = (V- - V+)/(2 * Vo * (Delta Y) )

Where
V- = 64.3927682
V+ = 58.54305794
Vo = 61.39132535
Delta Y = 0.005

Thus, duration = 9.528561611



Edited 1 time(s). Last edit at Sunday, February 20, 2011 at 08:08AM by bell99.