Macaulaly Duration about, why

Makavelim3

Has anyone had any questions about this type of duration calculation? The book says that it is flawed, so why would we need to know this?

bapswarrior

I thought Modified Duration is derived from Macaulaly Duration and only used for option-free bonds.

Siddimaula

Sorry for the confusion.

It is flawed for bonds with embedded options and is used only for Option Free bonds.

I meant, just learn the diff b/w effective duration and macaulaly duration

amqata

I think the formula is along the lines of effective duration = macaulay duration / (1 + YTM). (Or possibly the other way around).

Something like that anyways... I'm not going to worry about memorizing this formula, if it pops up on the exam I'll just play around with the numbers until I find something that works