17 Duration

In this video, we explore the concept of bond duration and its relationship to bond price sensitivity. We'll delve into how changes in yield to maturity affect bond prices and introduce duration as a measure of this sensitivity. Using two example bonds with different coupon rates, we'll calculate their prices at a given yield and then observe the price changes when the yield shifts slightly. This practical illustration will highlight how coupon rates influence a bond's price volatility. We then introduce MacCaulay duration, a metric that quantifies this sensitivity by time-weighting cash flows. We'll demonstrate the calculation of MacCaulay duration for both example bonds and compare their values. Understanding MacCaulay duration helps investors assess which bonds are more susceptible to fluctuations in market interest rates. Subscribe to @AxiomTutoringCourses for more financial education.