How do you calculate duration of a bond?

The formula for the duration is a measure of a bond’s sensitivity to changes in the interest rate, and it is calculated by dividing the sum product of discounted future cash inflow of the bond and a corresponding number of years by a sum of the discounted future cash inflow.

What is bond duration and convexity?

Duration measures the bond’s sensitivity to interest rate changes. Convexity relates to the interaction between a bond’s price and its yield as it experiences changes in interest rates. With coupon bonds, investors rely on a metric known as duration to measure a bond’s price sensitivity to changes in interest rates.

How do you calculate duration of a bond portfolio?

There are two methods for calculating the duration of a bond portfolio: the weighted average of time to receipt of the aggregate cash flows; and. the weighted average of the individual bond durations comprising the portfolio….The bond portfolio’s modified duration is closest to:

  1. 6.55.
  2. 7.54.
  3. 7.88.

Why bond duration is calculated?

Bond duration is a way of measuring how much bond prices are likely to change if and when interest rates move. In more technical terms, bond duration is measurement of interest rate risk. Understanding bond duration can help investors determine how bonds fit in to a broader investment portfolio.

Is convexity the derivative of duration?

Convexity is the rate that the duration changes along the yield curve. Thus, it’s the first derivative of the equation for the duration and the second derivative of the equation for the price-yield function or the function for change in bond prices following a change in interest rates.

How do I calculate duration in Excel?

Another simple technique to calculate the duration between two times in Excel is using the TEXT function:

  1. Calculate hours between two times: =TEXT(B2-A2, “h”)
  2. Return hours and minutes between 2 times: =TEXT(B2-A2, “h:mm”)
  3. Return hours, minutes and seconds between 2 times: =TEXT(B2-A2, “h:mm:ss”)