Duration of a Portfolio of Assets (SOA Exam FM–Financial Mathematics–Module 4, Section 3, Example 3)

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SOA Exam FM (Financial Mathematics) Module 4, Module 4, Section 3, Example 3

Example given in the video:

A portfolio of assets has three types of bonds with the following characteristics:
Bond A has a price of 2000 and a Macaulay duration of 9.5
Bond B has a price of 3000 and a Macaulay duration of 9.0
Bond C has a price of 5000 and a Macaulay duration of 16.0
All prices and Macaulay durations above were calculated using an annual effective interest rate of 6%. Determine the Macaulay duration of the portfolio using an annual effective interest rate of 6%.

After completing this video you should be able to:
- Define and recognize the definitions of the following terms: duration (Macaulay and modified).
- Calculate:
• The duration of a set of cash flows.