Bond Duration - Basics

  • July 2020
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BOND DURATION Inputs Rate Convention: 1 = EAR, 0 = APR Annual Coupon Rate (CR) Yield to Maturity (Annualized) (y) Number of Payments / Year (NOP) Number of Periods to Maturity (T) Face Value (FV) Outputs Discount Rate / Period (RATE) Coupon Payment (PMT)

Basics

Annual Percentage Rate

0 5.0% 9.0% 2 8 $1,000

4.5% $25

Calculate Bond Duration using the Cash Flows Period 0 1 2 3 4 5 6 7 Time (Years) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Cash Flows $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 Present Value of Cash Flow $23.92 $22.89 $21.91 $20.96 $20.06 $19.20 $18.37 Weight 2.8% 2.6% 2.5% 2.4% 2.3% 2.2% 2.1% Weight * Time 0.01 0.03 0.04 0.05 0.06 0.07 0.07 Duration 3.65 Modified Duration 3.49 Calculate Bond Duration using the Formula Duration 3.65 Modified Duration 3.49 Calculate Bond Duration using the Function (under APR) Duration 3.65 Modified Duration 3.49

8 4.0 Total $1,025.00 $720.76 $868.08 83.0% 100.0% 3.32 3.65

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