B
BhatiaI
Member
Hi All,
A quick question, in chapter 16, section 1.5 Effective Duration, the core reading says, "In most cases the term of the equivalent non-callable bond will be less than that of the callable bond".
I fail to understand this as I thought the term of non callable bond will be greater than callable (since it can be called in early at the borrower's desecration).
Also the statement following this statement on why 'principal only' bonds have a very high effective duration , I think 'interest only' bonds too are very sensitive to change in interest rates and hence they too should have a very high duration?
Am i missing something?
Thanks in advance for your help.
Kind Regards
ishita
A quick question, in chapter 16, section 1.5 Effective Duration, the core reading says, "In most cases the term of the equivalent non-callable bond will be less than that of the callable bond".
I fail to understand this as I thought the term of non callable bond will be greater than callable (since it can be called in early at the borrower's desecration).
Also the statement following this statement on why 'principal only' bonds have a very high effective duration , I think 'interest only' bonds too are very sensitive to change in interest rates and hence they too should have a very high duration?
Am i missing something?
Thanks in advance for your help.
Kind Regards
ishita