Key Rate Duration

The speaker discusses the concept of key rate duration.  The key rate duration is the approximate percentage change in bond price given a 1% change in the key rate. 

He covers the difference between key rate duration and duration.  Remember, duration quantifies the effect that changes in yields will have on the price of a bond.  Also remember, that the price of a bond is equal to the present value of future cash flows.  Therefore, duration will measure the change in the overall value of the bond if yields shift.  Key rate duration, on the other hand, zones in on yield shifts related only to specific cash flows within a term structure.

He illustrates an example of how to calculate key rate duration using a bond with a 5 year term.
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