2

I noticed this question, How to determine duration of a common stock whose dividends grow in perpetuity? I am familiar with the concept of duration for bonds, but not for common stock (actually, it is unfamiliar to me for equity-type securities of any sort... other than convertible bonds... maybe).

What are the differences in definition and usage of duration for securities that ARE fixed-income versus those that ARE NOT fixed-income?

3

A bond has a duration that can be easily calculated. It's the time weighted average of all the payments you'll receive and helpful to understand the effect a change in rates will have on that instrument.

The duration of a stock, on the other hand, is a forced construct to then use in other equations to help calculate, say, the summation of a dividend stream. I can calculate the duration of a bond and come up with an answer that's not up for discussion or dispute. The duration of a stock, on the other hand, isn't such a number. Will J&J last 50 more years? Will Apple? Who knows?

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.