What is a quick and easy way to remember why when investment horizon is greater than macaulay duration, the coupon reinvestment risk will tend to dominate market price risk? Vice versa.
Thanks!!
Invest horizon longer than Macaulay duration (f.ex. 6 -10) = negative duration gap = reinvestments risks.
Invest horizon shorter than Macaulay duration (f.ex. 6-3) = positive duration gap = market price risk.
I remember this as described. Hope it helps.
Oh right this makes sense. Longer investment horizon, more coupons, higher reinvestment risk.
Good!
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Yepp. Just make some your own conclusion to easy remeber any of plenty rules and definitions. No matter even if it sounds silly, once, when you master certain topic, you will find how your topic overall understanding has been rapidly improved.