Bond Duration Calculator
How to Use the Bond Duration Calculator
Enter a bond’s known Macaulay duration, yield to maturity and number of coupon payments per year. The calculator converts Macaulay duration into modified duration, which provides a first-order estimate of the bond’s sensitivity to small yield changes.
Practical Example
A bond with a 6-year Macaulay duration, 5% yield and semiannual coupons has a modified duration of about 5.854 years. A 1 percentage-point increase in yield would therefore imply roughly a 5.85% price decline using the duration approximation.
Factors That Affect Bond Duration
Maturity, coupon rate, yield, payment frequency and embedded options influence interest-rate sensitivity. Duration is a linear approximation, so convexity becomes increasingly important for larger yield movements.
Frequently Asked Questions
What is modified duration?
Modified duration estimates the percentage change in a bond’s price for a small one-percentage-point change in yield.
How is modified duration related to Macaulay duration?
Modified duration equals Macaulay duration divided by one plus the yield per coupon period.
Does duration predict the exact bond price change?
No. It is an approximation and becomes less precise for large yield changes or bonds with significant option features.
Methodology and Interpretation
Macaulay duration is a cash-flow-weighted time measure, while modified duration estimates price sensitivity to a small yield change. Duration is an approximation for interest-rate risk and becomes less accurate for large yield moves or securities with embedded options.