Fixed Income - Fixed Income Section 2
19. Which of the following is least likely to be used for the calculation of effective duration?
- Option : A
- Explanation : Unlike the modified duration, effective duration is a curve duration statistic that measures interest rate risk in terms of a change in the benchmark yield curve. Thus, the change in the bond’s own yield to maturity is not used for calculation.
- Option : B
- Explanation : Modified duration states the change in price of a bond as a result of change in yield for specific basis points/percentage. Macaulay duration states the weighted average time period until each payment due on a bond is expected to be paid off. Accelerated duration is an incorrect term.
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