Bond duration is one of the most essential metrics for understanding a bond’s interest-rate risk and price sensitivity. Our Macaulay and Modified Duration Calculator allows you to calculate duration instantly based on yield, coupon rate, maturity, frequency, and bond price.
Enter your bond inputs below to analyze interest-rate risk in seconds.
Macaulay Duration measures the weighted average time it takes to receive all cash flows (coupons + principal) from a bond. It represents the point in time when the investor effectively recovers the cost of the investment. Duration is expressed in years and increases with longer maturities, lower coupon rates, and lower yields.
Modified Duration measures how much a bond’s price will change for a 1% (100 bps.) change in yield. It is directly derived from Macaulay Duration and is the primary measure of interest-rate risk used by analysts and portfolio managers.
Formula:
Modified Duration = Macaulay Duration / (1 + (YTM)/n)
Higher duration indicates greater sensitivity to interest-rate movements.
Duration helps investors understand how bond prices react to interest-rate changes. A bond with a Modified Duration of 6 will lose approximately 6% of its value if yields rise by one percentage point (100 bps.). That makes duration essential for managing interest-rate risk, comparing fixed-income securities, and constructing immunized portfolios.
Suppose a bond has a Macaulay Duration of 7.2 years and a Modified Duration of 6.8. If interest rates increase by 1%, the bond’s price is expected to decline by approximately:
6.8%
This makes duration essential for understanding potential losses before they occur.
There is no universal “good” duration. Shorter duration means lower risk but typically lower returns. Longer duration offers higher sensitivity and higher potential yield.
Because Modified Duration adjusts the value for yield compounding, making it slightly smaller.
Not effectively. Floating-rate bonds require effective duration or key rate duration.
Lower yields increase the present value of later cash flows, shifting weight toward the maturity date and increasing duration.
Use the button below to analyze your bond’s interest-rate risk with our fast and accurate calculator.
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