Calculating Average Duration/Maturity for Multiple Bond Funds

#3 10-11-2005, 02:49 PM

- quote -

> You don't have to worry about the effects of the leverage as
> the fund would have already taken it into account when reporting
> its maturity and duration numbers.

Brilliant! Thanks again, Rich!

By the way, using Rich's helpful formula I put together a spreadsheet that
calulated the maturity for my overall fixed-income portfolio. Was suprised
to see that it was much shorter than I had guesstimated. I would urge
everybody with substantial fixed income positions to run the numbers.

#2 10-10-2005, 02:05 AM

pmb[at]his.com (Paul Michael Brown) writes:

- quote -

> Suppose I invest in a bond fund that employs leverage. Let's say 35 percent.
> How would I account for the leveraged bond fund when calculating the
> average maturity and average duration of my overall fixed income
> portfolio?

The bond fund will likely report its avg duration and maturity in
its literature. Just use those numbers in the formula. You
don't have to worry about the effects of the leverage as the fund would
have already taken it into account when reporting its maturity and
duration numbers.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

#1 10-09-2005, 07:47 PM

Thanks to Rich for his helpful formula. One follow up question:

Suppose I invest in a bond fund that employs leverage. Let's say 35 percent.

How would I account for the leveraged bond fund when calculating the
average maturity and average duration of my overall fixed income
portfolio?

10-03-2005, 01:04 AM

pmb[at]his.com (Paul Michael Brown) writes:

- quote -

> Suppose I have $A in Fund Alpha, which has an average maturity of YA years.
> Suppose I have $B in Fund Bravo, which has an average maturity of YB years.
> What is the formula for calculating the average maturity of these two
> funds combined?

The dollar-weighted avg maturity would be:
(A * YA) + (B * YB)
-------------------
A + B

- quote -

> Would the formula change if I wanted to calculate average duration?

If you wanted to be super-duper exact I believe it would (you'd do out
the full NPV-ish calculation that duration is defined from, using the
holdings in each fund as a sort of uber-bond), but using the above
formula with YA and YB as the durations of the funds should be more
than good enough for almost anything you'd do.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

#-1 10-02-2005, 09:59 PM

Suppose I have $A in Fund Alpha, which has an average maturity of YA years.

Suppose I have $B in Fund Bravo, which has an average maturity of YB years.

What is the formula for calculating the average maturity of these two
funds combined?

Would the formula change if I wanted to calculate average duration?

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