r/CFA • u/ResolutionLopsided84 • 1d ago

Level 1 Mac duration

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Here I don’t get it why it’s -ve price risk because mac duration> 4(investment horizon) therefore 5.86-4 is +ve, can someone pls explain how should I think about this

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u/SoggyApartment9743 1d ago

It's because since the int rate rises your price drops so negative price risk if int rate had increased, you will have positive price risk

2

u/Flaneur98 1d ago

Rates increase means price drop, price drop means negative, negative means negative price risk.

1

u/InevitableStock9992 1d ago

You can think of mac duration as weighted avg time to CF and think of investment horizon as when you sell. If your Investment horizon is less (or lower) than Mac duration = Sell first = Price risk. If your horizon is greater than Mac duration = CF first = reinvestment risk. Yields are increasing so lower yielding assets can now be bought at a lower price.But you are also able to benefit from higher yields through reinvesting at a higher yield compared to the YTM when originally bought. This would be the opposite for decreasing yields, you’d see a benefit of newer bonds yielding lower, therefore making your higher yielding bond more valuable. But you are now reinvesting coupons at a lower yield.