1. Fixed Income Derivatives MGT 4850 Spring 2008 University of Lethbridge

2. Outline of the class Duration summary Meaning of duration other math insights

3. Duration ( summary of previous class) Measure of the sensitivity of the price of a bond to changes in the interest rate at which Cash Flows are discounted Calculation Bank Immunization Bullet Immunization Convexity

4. Meaning of Duration Weighted Average of the bond’s payments Bond’s price elasticity with respect to its discount rate Discount factor elasticity Price volatility

5. Babcock’s Formula Weighted average of “current yield” and PVIF

6. Duration Patterns Maturity

7. Duration Patterns Coupon

8. Interest Rate Term Structure http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve