Calculate Macaulay duration and modified duration, then estimate how sensitive a bond's price may be to changes in market yield.
Enter the bond's characteristics below to estimate its Macaulay duration, modified duration and price sensitivity.
Use the current bond price and yield to calculate the present value of each future cash flow.
The results below are calculated from the bond's projected coupon and principal cash flows.
Modified duration can provide a first-order estimate of how a bond's price could respond to a change in yield.
Duration is an important concept in fixed-income investing.
Macaulay duration represents the weighted average time required to receive a bond's cash flows. Earlier cash flows receive lower time weights while later cash flows receive higher time weights, with each cash flow weighted by its present value.
Modified duration converts Macaulay duration into an approximate measure of bond price sensitivity to changes in yield.
For conventional fixed-rate bonds, higher modified duration generally means greater estimated price sensitivity to a given change in yield, all else equal.
Modified duration can be used as a first-order approximation.
A commonly used approximation is:
For example, if a bond has a modified duration of 5 and its yield increases by 1 percentage point, the duration approximation suggests a price change of approximately −5%, before considering convexity and other effects.
Longer-maturity bonds often have greater duration because a larger portion of their cash flows occurs further in the future.
Higher coupon payments bring more cash flow forward in time, which can reduce duration relative to a comparable lower-coupon bond.
Yield affects the present value assigned to future cash flows and is therefore relevant when calculating duration.
A zero-coupon bond makes no periodic coupon payments. Its only scheduled cash flow is generally the principal repayment at maturity.
Because there are no earlier coupon payments, the Macaulay duration of a conventional zero-coupon bond equals its remaining time to maturity.
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Bond duration is a measure used to describe the timing of a bond's cash flows and its sensitivity to changes in interest rates.
Macaulay duration is the present-value-weighted average time at which a bond's cash flows are received.
Modified duration estimates the percentage change in a bond's price for a small change in yield, assuming other relevant conditions remain constant.
Higher modified duration generally indicates greater sensitivity of a conventional fixed-rate bond's price to a given change in yield. Duration is only one measure of risk and does not capture every source of investment risk.
For a conventional fixed-rate bond, its coupon payments are fixed. When market yields change, the bond's market price can adjust so that its expected return is more consistent with prevailing market rates.
No. Maturity is the date when the bond's principal is due. Duration is a measure based on the timing and present value of the bond's cash flows.
No. EZTradingHub calculators are educational tools and do not provide personalized investment, financial, tax or legal advice.