DURATION

The DURATION function calculates the Macaulay duration of a security. It measures the weighted average time for an investment to recover its price through cash flows. This includes periodic interest payments and principal repayment.

Syntax 🔗

=DURATION(Settlement, Maturity, Rate, Yield, Redemption, [Frequency], [Basis])

Settlement The security's settlement date.
Maturity The security's maturity date.
Rate The security's annual coupon rate.
Yield The security's annual yield.
Redemption The security's redemption value at maturity.
Frequency (Optional) The number of coupon payments per year. Defaults to 1 (annual) if omitted.
Basis (Optional) The day-count basis to use. Defaults to 0 if omitted.

About DURATION 🔗

Use the DURATION function in Excel to calculate the duration of a bond. This function helps you understand how long it takes to recover your investment through cash flows, including both interest payments and principal repayment. It also allows you to evaluate the bond's price sensitivity to interest rate changes and assess the associated risks and returns.

To use the DURATION function, input details about the bond, such as settlement and maturity dates, coupon rate, annual yield, and redemption value at maturity. You also need to specify the frequency of coupon payments per year and the day-count basis for interest calculations.

The DURATION function offers flexibility with its optional parameters, allowing you to tailor the calculation based on the bond's specific characteristics, ensuring a precise assessment of its duration and risk profile. Whether you are analyzing bonds, debentures, or other fixed-income securities, the DURATION function provides a reliable method for determining the investment's time horizon for value recovery.

In summary, the DURATION function in Excel is a useful tool for assessing the duration of fixed-income securities, helping you navigate interest payments and principal redemption, and supporting informed investment decisions.

Examples 🔗

Consider a bond with a maturity date of June 30, 2025, a settlement date of January 1, 2022, an annual coupon rate of 4%, an annual yield of 3.5%, a redemption value of $1,000, and semi-annual coupon payments. To calculate the Macaulay duration using the DURATION function, enter the following formula:

=DURATION("01/01/2022", "06/30/2025", 0.04, 0.035, 1000, 2)

Suppose you hold a debenture with a maturity date of December 15, 2030, a settlement date of May 1, 2022, a semi-annual coupon rate of 5%, an annual yield of 4.5%, a face value of $5,000, and semi-annual coupon payments. Calculate the Macaulay duration using the DURATION function:

=DURATION("05/01/2022", "12/15/2030", 0.05, 0.045, 5000, 2, 0)

Notes 🔗

Use the DURATION function with valid Excel date values for settlement and maturity dates. The function assumes regular coupon payments. Adjust the parameters based on the specific characteristics of the security to ensure an accurate duration calculation.

Questions 🔗

What does the Macaulay duration calculated by the DURATION function represent?

The Macaulay duration computed by the DURATION function signifies the weighted average time it takes for an investment in a security to be repaid through the received cash flows, considering both interest payments and principal redemption. It aids in assessing the price sensitivity of the security to interest rate fluctuations.

Can the DURATION function handle securities with irregular coupon payment dates?

No, the DURATION function assumes regular coupon payments at consistent intervals and is tailored for securities with a predictable payment schedule. It's crucial to provide accurate data on coupon frequency and dates for precise duration calculation.

Is customization possible with the DURATION function's parameters for specific security attributes?

Yes, the DURATION function offers flexibility through optional arguments such as Frequency and Basis. You can adjust these parameters to match the exact characteristics of the security being evaluated, thus tailoring the duration calculation to specific investment scenarios.

What insights can be gained by analyzing the Macaulay duration of a security with the DURATION function?

By examining the Macaulay duration using the DURATION function, investors can gain valuable insights into the relationship between a security's price and interest rate changes. Understanding the duration helps in evaluating the investment's risk exposure and suitability in different market conditions.

MDURATION
YIELD
YIELDDISC
YIELDMAT
COUPDAYS
COUPDAYSNC
COUPNCD
COUPNUM
COUPPCD
ACCRINT
ACCRINTM

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