Duration is the main measure of price sensitivity which is used on the bond market. It indicates how much the bond price would change under the impact of change in the market interest rates. There is an inverse link between the bond price and yield through the interest rates. With the ...
In general parlance, the termdurationrefers to a time frame, but when it is used in the context of bonds, there's more nuance involved.Bond durationis usually closely related to the outstanding term of a fixed-income investment, and serves to measure how sensitive the price of a bond is ...
Recessions are bullish for duration (how long before the bond “ends”—is redeemed by the issuer) because rates fall. Which sends bond prices higher. Since we are heading into a slowdown, we don’t want to buy just any old bond. Credit quality is going to come into focus. Heck, last...
EXCEL duration calculation – The PRICE function When we calculate the price of a note or bond on a date other than a coupon paying date or an issue date, the price quote may either be a clean price or a dirty price depending on whether we exclude accrued interest from the calculation...
TBD: An "adjustment" in my implementation is needed to handle the case when the maturity date is not an annual anniversary of the settlement date. --- An important point to note is: for Excel DURATION, yield (B6) is treated as a simple ("nominal") rate, whereas the wiki page suggests...
Duration of high coupon bond is always shorter than duration of low coupon bonds because of larger cash inflow from higher interest payments. With zero coupon bonds, the duration would be equal to maturity. By calculating the duration of the entire asset and liability portfolio, the duration gap...
The risk-free rate should reflect the yield of a default-free government bond of equivalent maturity to the duration of each cash flow being discounted. The current yield on a U.S. 10-year bond is the preferred proxy for the risk-free rate for U.S. companies. For European companies, th...
The risk-free rate should reflect the yield of a default-free government bond of equivalent maturity to the duration of each cash flow being discounted. The current yield on a U.S. 10-year bond is the preferred proxy for the risk-free rate for U.S. companies. For European companies, th...
Bond valuation, in effect, is calculating thepresent valueof a bond’s expected future coupon payments. The theoretical fair value of a bond is calculated by discounting the future value of its coupon payments by an appropriatediscount rate. The discount rate used is the yield to maturity, whic...
Bond valuation, in effect, is calculating thepresent valueof a bond’s expected future coupon payments. The theoretical fair value of a bond is calculated by discounting the future value of its coupon payments by an appropriatediscount rate. The discount rate used is the yield to maturity, whic...