Lecture 3: Properties of Duration, Portfolio duration

Question 1

What are the 6 Properties of Duration

Answer 1

1. Modified duration and macaulay duration of a coupon bond are less than the maturity
2. the Macaulay duration of a zero coupon equals its maturity
3. There is an inverse relationship between duration and coupon size
4. there is a positive relationship between duration and term to maturity
5. there is an inverse relationship between YTM and duration
6. There is a consistency between properties of bond price volatility and the properties of duration

Question 2

how do we calculate Portfolio duration

Answer 2

Portfolio duraion is simply the weighted avergae of duration of the bonds in the porftolio