This Q&A podcast focuses on a finance class discussion about bond arbitrage and duration. The professor begins by addressing student questions regarding a recent bond arbitrage case, clarifying the concept of riskless profit and the complexities of dealing with callable bonds. The discussion then shifts to a detailed explanation of Macaulay duration, modified duration, and money duration, including calculations and real-world examples. The professor emphasizes the importance of understanding these concepts for managing interest rate risk, illustrating how to calculate and use them to hedge against potential losses. Finally, the class explores portfolio duration and hedging strategies using a combination of long and short positions in bonds of varying maturities.
