Suppose the duration D of a coupon-bearing coupon bond B at the current time t is defined by 

where c_i,i = 1, 2, ··· ,n, is the ith coupon on the bond paid at time t_i,F is the face value. Here, R is the yield to maturity on the bond, which is given by the solution to

Give a financial interpretation of duration. 

Transcribed Image Text:

D(B, t) = Σci(ti - t)e¬R(ti−1) + (În − 1)Fe¬R(tn i=1 -1)] / B.