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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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Bond Portfolio Statistics in Practice

The equations above suggest that calculating the summary statistics for a fixed-income portfolio is a straightforward matter. But it is not easy to do so, starting with YieldPORT, which is an input in the other equations. I assumed for convenience a nice, evenly spaced, semiannual pattern to the timing of cash flows. In reality, a typical portfolio of hundreds of bonds has coupon and principal payments occurring on many business days throughout the year, so N has to be measured in days, not semiannual periods. In reality, it's a really big internal rate of return calculation.

Imagine solving for YieldPORT back in the olden days before computers. Picture a back-office analyst working all day to get the solution ...

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