Bond Duration Formulas
For a standard bond with fixed, semi-annual payments the bond duration closed-form formula is:
- FV = par value
- C = coupon payment per period (half-year)
- i = discount rate per period (half-year)
- a = fraction of a period remaining until next coupon payment
- m = number of full coupon periods until maturity
- P = bond price (present value of cash flows discounted with rate i)
For a bond with coupon frequency but an integer number of periods (so that there is no fractional payment period), the formula simplifies to:
where
- y = Yield (per year, in decimal form),
- c = Coupon (per year, in percent),
- m = Number of coupon periods.
Read more about this topic: Bond Duration
Famous quotes containing the words bond, duration and/or formulas:
“Every doctor will allow a colleague to decimate a whole countryside sooner than violate the bond of professional etiquet by giving him away.”
—George Bernard Shaw (1856–1950)
“Higher than the question of our duration is the question of our deserving. Immortality will come to such as are fit for it, and he would be a great soul in future must be a great soul now.”
—Ralph Waldo Emerson (1803–1882)
“That’s the great danger of sectarian opinions, they always accept the formulas of past events as useful for the measurement of future events and they never are, if you have high standards of accuracy.”
—John Dos Passos (1896–1970)