Duration

Duration is a measure of the sensitivity of the price of a bond to the change of interest rate. It's widely used as a risk measure for bonds. The higher a bond's duration, the more risky it is.


Excel provides a formula to calculate Duration (also refers to Macauley Duration) and MDuration (somewhat inaccurately termed by Excel as Macauley Duration), using the same syntax:
Duration(settlement, maturity, coupon, yield, frequency, basis)
MDuration(settlement, maturity, coupon, yield, frequency, basis)

The MDuration can be used to calculate the volatility of a bond. The difference between Duration and MDuration is as follow:
MDuration = Duration / [ 1 + (yield / number of coupon payment per year) ]

The effects of maturity and coupon on duration are showed as follow:

* Download the Excel file - Duration, Effects of Maturity and Coupon *