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In this short guide, you’ll see how to calculate the bond duration. More specifically, you’ll see how to calculate the: Macaulay duration; and; Modified duration; To start, here is the formula that you can use to calculate the Macaulay duration (MacD): (t1*FV)(C) (tn*FV)(C) (tn*FV)
Macaulay Duration is computed through a mathematical formula that accounts for the discounted value of all future cash flows associated with the bond. This includes the periodic coupon payments as well as the bond's maturity value, all adjusted for the time at which they are received.
The price sensitivity of a bond is called duration because it calculates a length of time. Duration measures a bond price’s sensitivity to changes in interest rates by calculating the...
This bond duration tool can calculate the Macaulay duration and modified duration based on either the market price of the bond or the yield to maturity (or the market interest rate) of the bond. Since you'll have one or the other, choose the easier path to compute the duration.
The duration formula is a measure of a bond’s sensitivity to changes in the interest rate, and it is calculated by dividing the sum product of discounted future cash inflow of the bond and a corresponding number of years by a sum of the discounted future cash inflow.
Bond duration measures the sensitivity of a bond’s price to changes in interest rates by calculating the weighted average time it takes to receive all interest and principal payments.
Formulas to Calculate the Bond Duration. You can use the following formula to calculate the Macaulay Duration (MacD): (t1*FV)(C) (tn*FV)(C) (tn*FV) . MacD = (m*PV)(1+YTM/m)mt1 + ... + (m*PV)(1+YTM/m)mtn + (PV)(1+YTM/m)mtn . Where: m = Number of payments per period. YTM = Yield to Maturity. PV = Bond price.
Calculating Bond Duration Macaulay Duration Formula. The most commonly used formula for calculating bond duration is the Macaulay duration: Macaulay Duration = (t*CF)/[(1+y)^t] Where: t = the time period of the cash flow; CF = the cash flow amount at time t; i = the periodic yield on the bond
It is calculated using the following formula: Effective Duration P d P i 2 deltaYC P 0. Where P d is the price if the yield curve moves down i.e. when all the spot rates decrease by 1% and P i is the price when the yield curve shifts by 1% upwards, andP 0 is the base case bond price. Duration Calculations in Excel.
Duration is a way to measure the interest rate risk of a bond and is a critical factor in fixed income investing. Duration is defined as the change in value of a bond for a 1% change in interest rates.