The duration of a fixed income instrument is a weighted average of the times that payments (cash flows) are made. The weighting coefficients are the present value of the individual cash flows.
Bond Analysis
Duration of a Bond – Video
This video provides an introduction to the bond concept and the steps involved in calculating it.
Calculating the Macaulay Duration Using Excel
This video takes a simple example and demonstrates how the duration of the bond is calculated using excel.
Properties of Duration
Now that we understand what duration is, and how it is calculated, let’s take a look at some of the important properties of duration.
Modified Duration of a Bond
Modified duration indicates the percentage change in the price of a bond for a given change in yield. It is a more adjusted measure of Macaulay duration that produces a more accurate estimate of bond price sensitivity.
Calculating Price and Yield of a Bond Using Zero Curve
In this post, we will demonstrate how you can calculate the price and the yield of a bond using a zero curve. Assume that it is a 3-year bond that pays a coupon of 6% and has a $100 par value. We also have the 3-year zero curve as shown below: The cash flows for […]
Price-Yield Relationship
This short video demonstrates the relationship between the bond price and yield. If the price goes up, the yield comes down, and vice verse. The video analysis why it happens?
Current Yield of a Bond
Current Yield The current yield of a bond measures the returns an investor can expect if he holds the bond for a period of one year. It is calculated as the annual interest received divided by the current price of the bond. Current Yield = Annual Interest / Current Bond Price The current bond price […]
Basis Point Value (BPV / DV01)
Basis Point Value also known as Delta or DV01 represents the change in the value of an asset due to a 0.01% change in the yield. It is commonly used to measure the interest rate risk in a bond position or a portfolio and can be effectively used while hedging the portfolio. An effective way […]
Quick Approximation of Price Value of a Basis Point (PVBP)
We know that the Price Value of a Basis Point is the change in the value of a bond due to a 1 basis point change in the interest rates. You can use a spreadsheet to calculate the PVBP. However, if you want a quick approximation of the same, you can use your financial calculator, […]