Can anyone help me to understand the concept of duration of bonds and the properties of interest rate risk?
>>1776615
Bonds are shitty. If you buy a bond, and interest rates increase before the maturation date, you have a bond worth less than what you paid for it.
So that's interest rate risk. Are you asking for a particular formula for your homework or something?
>>1776615
The duration of a bond is the length of time utill payment is due. A $10K five year bond means that the bond issuer will pay the bond holder 10K five years from the date of sale. So a 10K 5 year bond at 5% interest would sell for $7835.26.
Interest rate risk is the risk that rates will change during the duration of the bond. When interest rates rise, bond prices fall. You can buy an older bond on the secondary market that will be due at the same time as another bond. I.e. you can buy a 1 year bond today @3% or a 4 year old 5 year bond @5%. The lower rate of return for the 1 year bond means the price is higher than at a higher interest rate. That means the 5 year bond is worth more now that it was expected 4 years ago.
>>1776640
>If you buy a bond, and interest rates increase before the maturation date, you have a bond worth less than what you paid for it.
That is only an issue if you do not hold the bond until maturity. Though, your point is why most of us buy bond funds.
>>1776615
I heard that bunny is actually being tortured.
Apparently when you hold a rabbit in water, after a little bit they go into shock and become limp.
So that rabbit is actually catatonic or something.
>>1776663
Is there a market for this?
>>1776692
I'm very bull on rabbit torture this year.