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Duration – Measures of Interest Rate Sensitivity

Macaulay Duration – Percentage change in Price for a percentage change in Yield.
(Average life of PV of Cash Flows)
Where,
( in Years, yield BEY)
Modified Duration – Percentage change in Price for a 100 basis point change in Yield

Effective Modified Duration – Percentage change in Price [...]

Mortgage Cash Flows
a. Underlying loan – No prepayments

Monthly Payment

                   rem = remaining term in months

Example:
Balance = $100,000
Coupon = 6%
Years = 30
rem =12 x 30 = 360

% Balance

Age & Original term in months

Example
For Age = 0 %, Balance [...]