How do you calculate the duration of a bond?

By taking our modified duration measure and multiplying that by the dollar price of our bond and then by a factor of 0.01, we arrive at a duration measure which gives an actual price change for a bond given a 100 basis point (or 1%) change in yield, which is clearly denoted in dollar terms.

What is bond duration?

Bond duration is a fundamental concept in fixed-income investing. It measures the sensitivity of a bond’s price to changes in interest rates by calculating the weighted average time it takes to receive all the interest and principal payments. The longer the duration, the greater the interest sensitivity. Bond prices change with interest rates.

What factors affect a bond's duration?

Time to maturity and a bond’s coupon rate are two factors that can affect a bond’s duration. Macaulay duration estimates how many years it will take for an investor to be repaid the bond’s price by its total cash flows. Modified duration measures the price change in a bond given a 1% change in interest rates.