Macaulay Duration, Modified duration

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stuartbale1

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Should i remember Macaulay Duration and modified duration formulae, or just understand them
 
You should understand them, and be able to calculate modified duration from Macaulay duration.
 
Macaulay duration is time consuming to calculate with the BAII (with spreadsheet is much more faster), so you won’t be asked to calculate it. However, modified duration is really easy to get from Macaulay duration.
 
What about approximate modified duration formula, should i remember that.
 
Approx mod dur & effective duration are basically the same formula. You need to know how to calculate these. The convexity formula is a similar formula with some adjustments so tbh they look difficult but just going through repatitions you can get it.
MacDur is not a difficult process, it is just extremely long. It is good to know how to do it, and essential you know how it relates to ModDur. You should know the meaning of MacDur as well, and know duration gap as that is an important concept that helps you really understand what duration is talking about, how rates & term really effect the value of a bond.
 
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