Computing modified duration (for the @CFA Level 1 exam)

Computing modified duration (for the @CFA Level 1 exam) explores the steps needed to calculate modified duration for a coupon-payng bond with a given YTM (yield to maturity).

[@vgetmanenko]

now i can tell my mom that i watch useful youtube

[@HonestFranklin]

This class is completely for students. It looks like the photo was taken with the board completely turned to the mirror.

[@letmeexplaincfa]

The image is flipped horizontally in post-production

[@hobbiesofanicaewchartereda1300]

Why don't we use TI BA II PROFESSIONAL version of calculator that you already have to calculate modified duration?

[@letmeexplaincfa]

I wanted to show the mechanics of the computation, but you are right - I may do this in a future video👍 thanks

[@financnifitness2583]

Hi Wojciech, do you think you could add also some videos with some exercises in the Maturity structure of interest rates topic? :)

[@letmeexplaincfa]

Yes, I will surely do some after the Summer holidays :)

[@rajkumarbagchi16]

Is there any chance that we will get questions like this on exam?

[@letmeexplaincfa]

The relevant Learning Outcome Statement uses the verbs: define, calculate and interpret Macaulay Duration, so, I guess the answer is a YES

[@ajalamoshood1772]

Is it possible to calculate this faster using the calculator

[@letmeexplaincfa]

Yes, please see previous video on Macaulay duration where I show the process

[@johnbarros3244]

MM student here and hes amazing. but this explanation was something i needed at the moment. thank you so much and hats off to you man

[@yufu4140]

My “dur” was not shown for my BAII after “ AI”. Do you know what’s wrong with my BA II?

[@letmeexplaincfa]

The student version of the calculator does not compute duration. Don’t worry, I always had the student version as well and it never hurt me😉 you will probably have to interpret and use duration as opposed to actually having to calculate it.

[@letmeexplaincfa]

The student version of the calculator does not compute duration. Don’t worry, I always had the student version as well and it never hurt me😉 you will probably have to interpret and use duration as opposed to actually having to calculate it.

[@clopana27]

Hi, thanks for the video it was very clear! one question, what if the YTM changes on each payment, which YTM should I be using to compute the modified duration?

[@letmeexplaincfa]

Hi, you use the YTM which exists at the time you are performing the valuation, based on the bond's current price.

[@trucquynhlenguyen5773]

Fantastic video, really useful, thank you so muchh, but could i ask you that if coupon pay semiannual, we will do the same but with double period right

[@letmeexplaincfa]

Thank you very much :) If the bond pays semi-annual coupons you would need to follow a similar approach, but have the periods as 0.5, 1.0, 1.5, 2.0 ... and so on, to reflect the semi-annual nature of the cash flows.

[@puggi1997]

amazing and clear explanatons , a personal request if possible, I have my exam in February, and i am struggling with the topic of derivatives, would it be possible to do an explaination on that topic, apologies for the urgency. Thanks

[@letmeexplaincfa]

Hello Ishaan, thank you for writing. I really appreciate your comment and suggestion. I have just completed my January recordings in the studio and unfortunately, will not be back until early March :( In the meantime I will just be uploading the content already recorded which has recently been focused on Deferred Tax and more Quantitative Methods. So, I will unfortunately not manage to record or release anything on Derivatives before your exam date. I nevertheless hope you will manage to clear the exam! Derivatives has already been suggested as a topic for future videos and I will certainly start covering it in the Spring. Take care and keeping my fingers crossed for you!

[@puggi1997]

@@letmeexplaincfa thanks a lot for your detailed response. Looking forward to all the new videos.