Actuarial Outpost Modified Duration From Mid-Year Payments
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 Financial Mathematics Old FM Forum

#1
04-25-2019, 08:06 PM
 ARodOmaha Member SOA Join Date: May 2016 Location: Omaha, NE College: University of Nebraska (alma mater) Favorite beer: Captain Morgan Posts: 201
Modified Duration From Mid-Year Payments

I have a quick question for FM people. I have a series of payments that I am assuming are being paid mid year, i.e. t = 0.5, 1.5, 2.5, ..., 49.5. I've calculated the Macaulay duration using an interest rate of 5%. My question is, to get the Modified duration, what do I do? Multiply my answer by 1.05^-1, or 1.05^-0.5? Thanks!
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#2
04-26-2019, 08:14 PM
 Academic Actuary Member Join Date: Sep 2009 Posts: 8,925

It doesn't matter when the payments are, the adjustment is the same. Technically is the rate was an nominal rate compounded mth ly you would divided by 1+ i(m)/m.