Fixed Income Analysis, Second Edition

NOTE ON ROUNDING DIFFERENCES

It is important to recognize in working through the numerical examples and illustrations in this book that because of rounding differences you may not be able to reproduce some of the results precisely. The two individuals who verified solutions and I used a spreadsheet to compute the solution to all numerical illustrations and examples. For some of the more involved illustrations and examples, there were slight differences in our results.

Moreover, numerical values produced in interim calculations may have been rounded off when produced in a table and as a result when an operation is performed on the values shown in a table, the result may appear to be off. Just be aware of this. Here is an example of a common situation that you may encounter when attempting to replicate results.

Suppose that a portfolio has four securities and that the market value of these four securities are as shown below:

Security	Market value
1	8,890,100
2	15,215,063
3	18,219,404
4	12,173,200
54,497,767

Assume further that we want to calculate the duration of this portfolio. This value is found by computing the weighted average of the duration of the four securities. This involves three steps. First, compute the percentage of each security in the portfolio. Second, multiply the percentage of each security in the portfolio by its duration. Third, sum up the products computed in the second step.

Let’s do this with our hypothetical portfolio. We will assume that the duration for each of ...