Could anyone expound what is money duration means?
so many “duration” calculation…kinda of confusing…thanks!
Seems it’s a new concept in level 1…
Modified duration measures the percentage price change of a bond to a change in its yield-to-maturity.
Money duration measures the absolute price change
Money Duration = Dirty Price x Modified Duration
But i’m not fully understand it either…
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FrankCFA’s got it:
- Modified (or effective) duration measures the percentage price change for a 1% change in the yield to maturity (YTM)
- Dollar (or money) duration measures the dollar (or other currency) price change for a 1% change in YTM
So, if you have a $1,000,000 portfolio with a modified duration of 4 years and its YTM increases 0.1%, then its dollar duration (money duration) is $1,000,000 × 4 years = 4,000,000 (dollar-years), its (approximate) percentage price change is -4 × 0.1% = -0.4%, and its (approximate) dollar change is -$4,000,000 × 0.1% = -$4,000.
I am joining the discussion a bit late, but the book (reading 23) defines money duration as:
Money duration is market value multiplied by modified duration, divided by 100.
So in Bill’s example, the dollar/money duration should be: $1,000,000 x 4 years : 100, correct???
In the most recent Wiley Mock, question 25 did not divide by 100.
I just read this in Reading 29:
The money duration of a bond is a measure of the price change in units of the currency in which the bond is denominated. Money duration can be stated per 100 of par value or in terms of the bond’s actual position size in the portfolio. In the United States, money duration is commonly called “dollar duration.”
Can anyone explain how this affects the correct interpretation?
Hello Tartaglia, I am a lvl 1 candidate studying with Kaplan, and in the quiz bank a lot of the money duration questions will specifically state if they want it per $100 of par or not, and generally they won’t try to trick you with by provideing both x and x/100. The definition in the books does state that it should be a $/100 of par notation, but it doesnt appear like thats how its always being used in practice.
If anyone has noticed anything to the contrary, let me know!
If you interpret it the way the person who calculated it intended it, everything’s hunky-dory.
If not, you’ll be off by a factor of 100: either your number will be 100 times what it should be, or it will be 0.01 times what it should be. In either case, you should recognize that your number is either much larger or much smaller than the answer choices.