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Why modified duration is a better measure than maturity when calculating the bonds sensitivity to changes in interest rate?
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∙ 11y ago
i need the answer...please
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∙ 11y ago
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Does the yield to maturity of a bond decrease as the bond nears maturity?
Nope it doesn't you suck
What is the weekly average 1-year constant maturity Treasury yield?
.14
What is the difference between Six Sigma and CMMI?
Six Sigma, this can be simplified thanks to www.dbar-innovations.com and the software they offer that has training, statistical analysis, and complete project management. 713-436-6941The goal of Six Sigma is to increase profits by eliminating variability, defects and waste that undermine customer loyalty. Six Sigma can be understood/perceived at three levels:Metric: 3.4 Defects Per Million Opportunities. DPMO allows you to take complexity of product/process into account. Rule of thumb is to consider at least three opportunities for a physical part/component - one for form, one for fit and one for function, in absence of better considerations. Also you want to be Six Sigma in the Critical to Quality characteristics and not the whole unit/characteristics.Methodology: DMAIC/DFSS structured problem solving roadmap and tools.Philosophy: Reduce variation in your business and take customer-focused, data driven decisions.Six Sigma is a methodology that provides businesses with the tools to improve the capability of their business processes. This increase in performance and decrease in process variation leads to defect reduction and vast improvement in profits, employee morale and quality of product.-------Six Sigma is a rigorous and a systematic methodology that utilizes information (management by facts) and statistical analysis to measure and improve a company's operational performance, practices and systems by identifying and preventing 'defects' in manufacturing and service-related processes in order to anticipate and exceed expectations of all stakeholders to accomplish effectiveness.I use a software system that will talk to you with audio as it walks you through the entire methodology. I like to refer to it as my professor in a computer. It has all the templates and tools for statistical analysis, reads and reports the analysis and archives the report while providing a complete tracking system, provide training and best for a large team driving multiple projects. Too much more to say. Here is a pH.# for more details. 713-436-6941CMMI or Six Sigma: Does It Matter Which Comes First?Bookmark This Page Email This Page Format for Printing Cite This Article Submit an Article Read More Articles Related Tools & ArticlesConnecting Six Sigma to CMMI Measurement and AnalysisConnections Between Design for Six Sigma and CMMICombining CMMI®, PSP, TSP and Six Sigma for SoftwareDiscussion Forum "How can we integrate CMMI with Six Sigma? At which level of CMMI maturity would Six Sigma be most appropriate for integration? Should we implement CMMI first then follow by Six Sigma or otherwise? Is Six Sigma duplicating CMMI processes...?"Contribute to this DiscussionBy Karl D. WilliamsAn organization is getting into process improvement. Should it look at the Software Engineering Institute's capability maturity model integration (CMMI) first? Six Sigma first? Or both at the same time?This dilemma has confronted many organizations during the last several years. The situation reminds me of a session at a symposium in 1984 at which both W. Edwards Deming and Joseph Juran were present at the symposium. Someone from the audience asked, "Should we follow Deming's teachings or those of Juran?" Deming, in his inimitable, gruff voice responded, "Pick either…just do something."While the same question could arise about the use of CMMI or Six Sigma, there have been some interesting case studies during the last few years surrounding the order of choice. Since I have spent 80 percent of my time during the last 15 years with SEI CMMI and its predecessor, the SW-CMM®, one would expect a bias in favor the CMM/CMMI. However, I have personally been associated with three case studies demonstrating the benefits of looking at Six Sigma first…at least a little bit first.All three scenarios involved organizations that were well into the Six Sigma expansion. There were Black Belts, Green Belts and Champions trained. All staff had some form of Six Sigma orientation, at least a four-hour overview.The three organizations were:A medium-sized financial specialty company in the Midwest.An IT organization of a large educational supplier in the Southwest.A 120-person division of a multi-national communications vendor in the Southeast.All had made significant inroads into Six Sigma's DMAIC roadmap before they ventured into the SEI CMM/CMMI world. Each was introduced to the CMMI via training and consulting. After about two months, a "mini-assessment" (Class C appraisal) was held. The results across the board were significantly different than the usual initial appraisal. A significant number of processes were already documented and used, as opposed to the usual blank stares when procedures/templates are requested during an appraisal. All three had results more typical of a second or third round of appraisals than the normal results. Especially noticeable was the difference in the quantitative-based process areas (e.g., measurement and analysis at maturity level 2 and the maturity levels 4 and 5 process areas covering quantitative process management and formal continuous improvement). In most initial Class C appraisals, no one bothers to look at maturity levels 4 and 5 process areas, sometimes not even maturity level 3. In all three cases, plans called for reviewing only maturity levels 2 and 3. As the appraisals progressed, the results were so startling that the maturity levels 4 and 5 also were investigated.In each of the three cases, the following areas are presented for summary comparison:Case 1 ResultsMeasurement and analysis process area: All goals were satisfied with all practices implemented, and no improvement opportunities.Maturity level 4 process areas (2): All but two goals were satisfied. All practices largely implemented with three improvement opportunities.Maturity level 5 process areas (2): All but two goals satisfied. All practices largely/partially implemented with two improvement opportunities.Follow-up accomplishments: The group completed a maturity level 2 appraisal as planned for calendar year objectives. The maturity level 3 appraisal was successful nine months later. Plans were halted when the organization was acquired by a large multi-national organization.Case 2 ResultsMeasurement and analysis process area: All goals and practices compliant with one improvement opportunity.Maturity level 4 process areas (2): All but two goals compliant. All practices largely / partially compliant with five improvement opportunities.Maturity level 5 process areas (2): All but one goal compliant. All practices largely compliant with two improvement opportunities.Follow-up accomplishments: The group was appraised at level 3 three months later and is planning for a level 5 appraisal this quarter.Case 3 ResultsMeasurement and analysis process area: All goals and practices compliant with one minor improvement opportunity.Maturity level 4 process areas (2): All but one goal compliant. All practices largely compliant with three improvement opportunities.Maturity level 5 process areas (2): All goals and practices compliant.Follow-up accomplishments: The group was appraised at level 3 one month later and level 5 six months following that event.The above results are phenomenal for first-time Class C appraisals. Upon further investigation, all stakeholders agreed that the Six Sigma tools and mindset had contributed greatly to such unparalleled results. Also documented were such shared characteristics as:All processes and procedures contained measurements, root cause analysis, and continuous improvement follow-up.All organizational results exceeded the data published by the SEI benchmarking activities.All levels of management and staff used the measurements on a daily basis.More interestingly, all three of these case studies involved organizations whose Six Sigma training and focus had been strictly DMAIC. All three believe that their CMMI results as well as the organizational measurements would have been significantly better if their Six Sigma training had included the concepts in Design for Six Sigma, with more focus on understanding requirements and performance drivers versus the DMAIC fix-and-improve approach.I am still a devout CMMI advocate. It is unmatched at providing the "whats" of process improvement and design. However, I am encouraged and impressed by the three cases investigated demonstrating the horsepower gained from a Six Sigma approach and mindset. I suspect that Drs. Deming and Juran would be pleased to see the gains they enabled via the tools and cultures of quality.About the Author: Karl D. Williams is a principal consultant. He has trained more than 17,000 people in CMM, CMMI, Six Sigma and software skills. Mr. Willaims was a director at Motorola and, more recently, was a senior vice president of process design for Bank of America. He is a Master Black Belt, an SEI-authorized CMMI trainer and lead assessor. He has published more than 70 articles and authored a book entitled Continuous Improvement & Reengineering…A Better Way.
What is Risk neutral probability measure?
A probability measure allocates a non-negative probability to each possible outcome. All individual probabilities together add up to 1. The "risk-neutral probability measure" is used in mathematical finance. Generally, risk-neutral probabilities are used for the arbitrage-free pricing of assets for which replication strategies exist. This is about relative pricing, based on possible replication strategies. The first argument is that a complete and arbitrage-free market setting is characterised by unique state prices. A state price is the price of a security which has a payoff of 1 unit only if a particular state is reached (these securities are called Arrow securities). In a complete market, every conceivable Arrow security can be traded. It is more easy to visualise these securities in terms of discrete scenarios. (On a continuous range of scenarios we would have to argue in terms of state price density.) The arbitrage-free price of every asset is the sum (over all scenarios) of the scenario-payoff weighted with its state price. Any pricing discrepancy with regards to an implicit state price would enable arbitrage in a complete market. The assumption is that the pursuit of such opportunities drives the prices towards the arbitrage-free levels. Hence the state prices are unique. Since the whole set of Arrow securities is the same as a risk-free bond (sure payoff of 1 unit at maturity), the price of the whole set of Arrow securities must be e^(-rt) (assuming we are now at maturity minus t). Risk-neutral probabilities can then be defined in terms of state prices, or vice versa. A probability measure has to fulfil the condition that the sum of all individual probabilities adds up to 1. Therefore, if we want to create an artificial probability distribution based on the state price distribution, we have to multiply each state price with e^(rt) in order to obtain its probability equivalent. It is not surprising then that any expectation taken under the risk-neutral probability measure grows at the risk-free rate. This is an artificial probability measure, why should we create such a construct? This connection allows us to exploit mathematical tools in probability theory for the purpose of arbitrage-free pricing. The main difficulty about risk-neutral probabilities is that the probability concepts used have not initially been developped for the purpose of financial pricing, therefore, two different languages are used, which can easily be confusing. The economic interpretation of a risk-neutral probability is a state price compounded at the risk-free rate. Anything that has an effect on a state price (preferences, real probability, ...), has an effect on the risk-neutral probability. So now we have a bridge to go from state prices to risk-neutral probabilities and back again. What is this good for? According to the second argument, we can, under certain conditions, specify the unique risk-neutral probability distribution of an underlying asset price with the help of an only incomplete specification of its real probability distribution, thanks to the Girsanov Theorem. If the innovation in the price of the underlying asset is driven by a Brownian motion, then all we need to obtain the risk-neutral probability distribution is the volatility parameter. What can we now do with this risk-neutral probability distribution? We can use the first argument to convert the obtained risk-neutral probability distribution back to a state price distribution, and the state price distribution applied to the payoff distribution (i.e. taking the sum over all scenarios) leads to the arbitrage-free price. These arguments save us a lot of trouble when trying to calculate the arbitrage-free price of an asset. They allow us to avoid the estimation of risk premia, by implicitly using those incorporated in the underlying asset price. The arbitrage-free price is, however, NOT independent of risk-premia. The price of the underlying asset is part of the pricing equation, and the risk-premia are inherent in this price, but because the price of the underlying asset is known to us, we obviously do not need estimate it. It is important to emphasise that the risk-neutral valuation approach only works if the asset to be priced can be perfectly replicated. This is often not true in reality, especially when dynamic replication strategies are involved. Paper explaining risk-neutral probabilities: http://ssrn.com/abstract=1395390
Why is duration of bond important?
Duration is the weighted average number of years necessary to recover the initial cost of the bond • It allows comparison of effective lives of bonds that differ in maturity, coupon. • It is used in bond management strategies particularly immunization. • Measures bond price sensitivity to interest rate movements, which is very important in any bond analysis Duration is a direct measure of interest rate risk: • The higher the duration, the higher the interest rate risk
What is the duration of Painful Maturity?
The duration of Painful Maturity is 1.5 hours.
If two bonds have the same maturity the same yield to maturity and the same level of risk the bonds should they sell for the same price regardless of the bond's coupon rate?
if two bonds offer the same duration and yield, then an investor should look at their levels of convexity. if one bond has greater convexity, it is less affected by interest rate changes. also, bonds with higher convexity will have higher price than bonds with lower convexity regardless whether interest rates rise or fall. Ergo, investors will have to pay more with greater convexity due to the bond's lesser sensitivity to interest rate changes.
Who said Maturity doesn't mean age it means sensitivity manners and how you react?
Pravin Todkar
What is a yield to maturity?
A yield to maturity is the internal rate of return on a bond held to maturity, assuming scheduled payment of principal and interest.
Is bond duration always less than maturity?
yes
Maturity value of an interest-bearing note payable is the?
Face value plus interest.
Does bond pay interest on maturity?
Yes. At maturity you get the final coupon payment in addition to the return of principal.
What are malkiel's theorems?
Malkiel's theorems summarize the relationship between bond prices, yields, coupons, and maturity. Malkiel's Theorems paraphrased (see text for exact wording); all theorems are ceteris paribus: · Bond prices move inversely with interest rates. · The longer the maturity of a bond, the more sensitive is its price to a change in interest rates. · The price sensitivity of any bond increases with its maturity, but the increase occurs at a decreasing rate. · The lower the coupon rate on a bond, the more sensitive is its price to a change in interest rates. · For a given bond, the volatility of a bond is not symmetrical, i.e., a decrease in interest rates raises bond prices more than a corresponding increase in interest rates lower prices.
How can I calculate the duration of bond with interest income tax?
Coupon Rate:10.50% Yearly Coupon Payment(times):12 Term to Maturity(years):3 Tax rate for interest income:10% Current total value of the bond:65025 What should I do now ? Should ı use compound interest ?
What is maturity value?
The new value to a loan or investment after interest.
What is repaid to the investor on a bond's maturity date?
The principle and interest.
