Why is the weighted average portfolio duration method said to have a 'limitation' regarding yield changes?
Explanation
The aggregation assumes a single 'yield change' parameter applies to all bonds.
Other questions
What does bond convexity primarily measure in the context of the price-yield relationship?
For an option-free bond with positive convexity, how does the bond price react to equal sized increases and decreases in yield?
Which formula correctly estimates the percentage change in bond price using both duration and convexity?
A bond has a modified duration of 8 and a convexity of 100. If the yield increases by 1% (0.01), what is the estimated percentage price change?
Using the same bond (Duration 8, Convexity 100), if the yield decreases by 1% (-0.01), what is the estimated percentage price change?
What happens to the rate at which bond price decreases as the yield increases?
What happens to the rate at which bond price increases as the yield decreases?
How does convexity affect the accuracy of price prediction for large yield changes?
Which of the following is the formula for calculating Money Convexity?
If a bond has an annual convexity of 50 and a full price of $1,000, what is the Money Convexity?
What does Money Convexity capture?
Which equation correctly estimates the change in the full price of a bond using Money Duration and Money Convexity?
According to the term structure of yield volatility, which yields are typically more volatile?
How is portfolio duration commonly calculated in practice?
What is the primary limitation of calculating portfolio duration as a weighted average of individual bond durations?
What weights are used when calculating the weighted average portfolio duration?
What is the 'Duration Gap' defined as?
If the Investment Horizon (HP) is less than the Macaulay Duration (MD), which risk dominates?
If the Investment Horizon (HP) is greater than the Macaulay Duration (MD), which risk dominates?
If the Investment Horizon equals the Macaulay Duration, what is the effect on interest rate risk?
A bond has a Macaulay Duration of 7 years. If an investor's horizon is 3 years, and interest rates rise significantly, how will the realized yield compare to the initial YTM?
A bond has a Macaulay Duration of 7 years. If an investor's horizon is 10 years, and interest rates rise significantly, how will the realized yield compare to the initial YTM?
A portfolio consists of Bond A (Weight 40%, Duration 5) and Bond B (Weight 60%, Duration 10). What is the portfolio duration using the weighted average method?
The 'Duration Gap' is positive when:
If the Duration Gap is zero, the bond portfolio is said to be:
In the context of horizon analysis, when interest rates fall (e.g., from 5% to 2%), what happens to an investor with a positive duration gap (Horizon < Duration)?
Which portfolio duration method would be least accurate for a portfolio of callable bonds?
A bond's Money Convexity is 200,000 and Money Duration is 5,000. For a yield increase of 0.01 (1%), what is the approximate change in the bond's full price?
In the formula for percentage price change, what is the sign of the convexity adjustment term for a standard option-free bond?
A bond has duration 4 and convexity 20. If yields rise by 200 basis points (0.02), what is the convexity adjustment to the price change?
Which risk measures are most appropriate for a bond with embedded options?
If a bond's price-yield curve is a straight line, what is its convexity?
What happens to the reinvestment income when interest rates rise?
What happens to the capital gain/loss on sale (price risk) when interest rates rise?
In the Duration Gap analysis, the two offsetting risks are:
If a portfolio has a negative duration gap (Horizon > Duration), what is the investor's view on interest rates to maximize return?
Which duration statistic is best for estimating the absolute change in the bond's value (in currency units)?
If you hold a bond to maturity, what is your primary interest rate risk?
The convexity of a bond is 60. The yield changes by 0.005 (0.5%). What is the approximate convexity adjustment percentage?
Which statement regarding Term Structure of Yield Volatility is true?
What does a Macaulay Duration of 7 years imply about the investment horizon?
Using weights based on full price to calculate portfolio duration is theoretically equivalent to assuming:
Money Duration is calculated as:
For a bond with duration 10 and convexity 200, estimate the price change for a 2% (0.02) yield increase.
For a bond with duration 10 and convexity 200, estimate the price change for a 2% (0.02) yield decrease.
Why might the 'Cash flow yield' method be considered theoretically better for option-free bond portfolios?
What is the primary reason convexity is always positive for a standard option-free bond?
Which portfolio is 'Immunized'?
In the FinTree Fruit 6 diagram, if the YTM drops to 2%, what outcome is shown for the short investment horizon?