Bond Duration Basics

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Bond Duration Basics

  1. 1. BOND DURATION Basics Annual Percentage Rate Inputs Rate Convention: 1 = EAR, 0 = APR 0 Annual Coupon Rate (CR) 5.0% Yield to Maturity (Annualized) (y) 9.0% Number of Payments / Year (NOP) 2 Number of Periods to Maturity (T) 8 Face Value (FV) $1,000 Outputs Discount Rate / Period (RATE) 4.5% Coupon Payment (PMT) $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
  2. 2. 8 4.0 Total $1,025.00 $720.76 $868.08 83.0% 100.0% 3.32 3.65

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