1. What is Bond Duration?

Bond duration measures the sensitivity of a bond's price to changes in interest rates, expressed in time units. It's a weighted average of the times until fixed cash flows are received.

2. How Does the Calculator Work?

The calculator uses the Macaulay duration formula:

Where:

• \( t \) — Time period (1 to n)
• \( C_t \) — Cash flow at time t
• \( r \) — Periodic discount rate
• \( Price \) — Current bond price

Explanation: The formula weights each cash flow by the time until receipt and discounts it to present value, then divides by the bond's price.

3. Importance of Duration Calculation

Details: Duration helps investors understand interest rate risk and compare bonds with different maturities and coupon rates. It's essential for bond portfolio immunization strategies.

4. Using the Calculator

Tips: Enter the number of periods, all cash flows (comma-separated), the periodic discount rate (as decimal), and the bond price. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between duration and maturity?
A: Maturity is when principal is repaid, while duration considers all cash flows and their timing.

Q2: How does coupon rate affect duration?
A: Higher coupons mean more weight on earlier payments, reducing duration.

Q3: What does higher duration indicate?
A: Greater price sensitivity to interest rate changes.

Q4: What's modified duration?
A: Macaulay duration divided by (1 + yield), measuring price sensitivity directly.

Q5: Can duration be longer than maturity?
A: Only for zero-coupon bonds where duration equals maturity. Otherwise duration is shorter.