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Bond Duration Calculation Examples

This document provides an example of calculating the duration of a bond with a $1,000 par value, 8% annual coupon, and 2 year maturity. It shows the market value calculation, Macaulay duration of 1.93 years, modified duration of 1.82 years, and effective duration matching the modified duration of 1.82.

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fati159
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15 views1 page

Bond Duration Calculation Examples

This document provides an example of calculating the duration of a bond with a $1,000 par value, 8% annual coupon, and 2 year maturity. It shows the market value calculation, Macaulay duration of 1.93 years, modified duration of 1.82 years, and effective duration matching the modified duration of 1.82.

Uploaded by

fati159
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Example Duration Calculations

Data Provided

Bond Par Amount: $1,000 Bond Coupon: 8% Coupon Frequency: Annual


Market Discount Rate: 6% Bond Maturity: 2 years

Calculate Market Value of Bond

$80/(1+.06) + $80/(1.06)^2 + $1000/(1.06)^2 = $75.47 + $71.20 + $890.00 = $1,036.67

Calculate Macaulay Duration

$75.47 x1 +$ 71.20 x 2 + $890.00 x 2 = $1997.86

$1997.86 / $1036.67 = 1.93 years

Calculate Modified Duration

1.93 / (1+.06) = 1.82

Calculate Effective Duration

Discount at 5.5%: $80/(1.055) + $80/(1.055)^2 + $1000/(1.055)^2 = $1,046.16

Discount at 6.5%: $80/(1.065) + $80/(1.065)^2 + $1000/(1.065)^2 = $1,027.31

($1046.16 - $1027.31) / $1036.67 = .0182 = 1.82%

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