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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35397  
Subject: Re: "Long Bond" - buying and rolling Date: 2/20/2006 10:23 AM
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Duration does not go down 1-for-1 with time.
Correct. Although it could, zero coupon bond.

...and stable interest rates.

Duration assumes that all interest rates move in unison.
Not exactly correct

You're right, I misspoke. I should have said something similar to "In order to use the duration number as a quick estimate to predict the price change of the bond given future interest rate moves requires that you assume interest rates will move in unison."

It is however, an instrument to immunizing a bond or portfolio against interest rate risk.

A bond buyer always has interest rate risk of one kind or another, unless he's holding some options (either a put option or a floor option)

This is some what in contrast to your previous point about interest rates moving in "unison"

Because with a portfolio of bonds, the duration behaves more like the naive expectation. I'm now beginning to see your point that a single bond can have the same interest rate risk as a laddered portfolio, as long as you have the right expectations.

You're right -- I don't think we disagree.
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