UN-15B

A B C D E F G
1 BASIC DURATION CALCULATION
2 YTM 7%
3
t*Ct,A / t*Ct,B /
4 Ct,A PriceA*(1+YTM)t Ct,B PriceB*(1+YTM)t
Year
5 1 70 0.0654 130 0.0855 #VALUE!
6 2 70 0.1223 130 0.1598 #VALUE!
7 3 70 0.1714 130 0.2240
8 4 70 0.2136 130 0.2791
9 5 70 0.2495 130 0.3260
10 6 70 0.2799 130 0.3657
11 7 70 0.3051 130 0.3987
12 8 70 0.3259 130 0.4258
13 9 70 0.3427 130 0.4477
14 10 1070 5.4393 1130 4.0413
15
16 Bond price 1,000.00 #VALUE! 1,421.41 #VALUE!
17 Duration 7.5152 #VALUE! 6.7535 #VALUE!
18
19 Using the Excel function Duration and the "home-made" function Dduration
20 Bond A 7.5152 #VALUE!
21 #VALUE! #VALUE!
22
23 Bond B 6.7535 #VALUE!
24 #VALUE! #VALUE!
 A B C D E

DURATION AS PRICE ELASTICITY

1 The change in the bond price can be approximated by
DP » - Duration*Price*Dr/(1+r)
2 Discount rate 7%
3
4 Bond A Bond B
5 Coupon rate 7% Coupon 13%
6 Face value 1,000 Face value 1,000
7 Maturity 10 Maturity 10
8
9 Price 1,000.00 Price 1,421.41
10 Duration 7.5152 Duration 6.7535
11
12 New discount rate 7.70%
13 New price 952.39 1,360.50
14
15 Change in price
16 Actual 47.61 60.92
Using duration as approximation
17
DP » - Duration *Price*Dr/(1+r) 49.17 62.80
18

19
Using MDuration 49.17 62.80
 F

ON AS PRICE ELASTICITY
bond price1 can be approximated by
Duration*Price*Dr/(1+r)
2
3
4
5
6
7
8
9 #VALUE!
10 #VALUE!
11
12
13 #VALUE!
14
15
16 #VALUE!

17
#VALUE!
18

19
#VALUE!
 A B C

BABCOCK'S FORMULA FOR DURATION

1 Duration is convex combination of current yield and present value factor:
D = N*y/r + (1 - y/r) * PVIF(N,r,-1)*(1+r)
2 N, bond maturity 10
3 r, 7%
4 C, bond coupon 13%
5 Face value 1,000
6 Price 1,421.41 #VALUE!
7 Current yield 9.15% #VALUE!
8 PVIF(r,N) 7.0236 #VALUE!
9
10 Two duration formulas
11 Babcock's formula 6.7535 #VALUE!
12 Standard formula 6.7535 #VALUE!
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A B C
1 EFFECT OF COUPON ON DURATION
2 Current date 5/21/1996 #VALUE!
3 Maturity, in years 21
4 Maturity date 5/21/2017 #VALUE!
5 YTM 15% Yield to maturity (i.e., discount rate)
6 Coupon 4%
7 Face value 1,000
8
9 Duration 9.0110 #VALUE!
10
11 Data table: Effect of coupon on duration
12 9.0110
13 0% 21.0000
14 1% 13.1204
15 Bond coupon --> 2% 10.7865
16 3% 9.6677
17 4% 9.0110
18 5% 8.5792
19 6% 8.2736
20 7% 8.0459
21 9% 7.7294
22 13% 7.3707
23 15% 7.2593
24 17% 7.1729
25
26
27
28
29
30
31
32 graph title
33 Effect of Coupon on Duration
34 Maturity = 21, YTM = 15.00%

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 Page 678

D
FFECT OF 1COUPON ON DURATION
2
3
4
Yield to maturity
5 (i.e., discount rate)
6
7
8
9
10
11
12 #VALUE!
13
14
Effect of Coupon on Duration
15
Maturity = 21, YTM = 15.00%
16 23
17 21
18
19
19
20 17
21 15
Duration

22 13
23
11
24
25 9
26 7
27
5
28 0% 2% 4% 6% 8% 10% 12% 14% 16%
29 Coupon rate
30
31
32
Coupon on Duration
33
21, YTM = 15.00%
34

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 Page 679

A B C
1 EFFECT OF MATURITY ON DURATION
2 Current date 5/21/1996 #VALUE!
3 Maturity, in years 21
4 Maturity date 5/21/2017 #VALUE!
5 YTM 15% Yield to maturity (i.e., discount rate)
6 Coupon 4%
7 Face value 1,000
8
9 Duration 9.0110 #VALUE!
10
11 Data table: Effect of maturity on duration
12 9.0110
13 1 1.0000
14 5 4.5163
15 Bond maturity --> 10 7.4827
16 15 8.8148
17 20 9.0398
18 25 8.7881
19 30 8.4461
20 40 7.9669
21 50 7.7668
22 60 7.6977
23 70 7.6759
24 80 7.6693
25
26
27
28
29
30
31
32 graph title
33 Coupon rate = 4.0%, YTM = 15.00%

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 Page 679

D
EFFECT
1 OF MATURITY ON DURATION
2
3
4
Yield to maturity
5 (i.e., discount rate)
6
7
8
9
10
11
12 #VALUE!
13
14
15 10 Effect of Coupon on Duration
16 9 Coupon rate = 4.0%, YTM = 15.00%
17 8
18
19 7
20 6
Duration

21 5
22
23 4
24 3
25
2
26
27 1
28 0
29 0 10 20 30 40 50 60 70 80
30
31 Maturity
32
ate = 4.0%, YTM33 = 15.00%

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 Page 681

A B C D

1
DURATION OF BOND WITH UNEVEN PERIODS
Brute Force Calculation and Dduration function
2 Alpha 0.3 Time until first coupon payment (in years)
3 N 5 Number of payments
4 YTM 6%
5 Coupon 100
6 Face 1,000
7 Bond price 1,217 #VALUE!
8
9 Period Payment t*Ct /Price*(1+YTM)t
10 0.3 100 0.0242 #VALUE!
11 1.3 100 0.0990
12 2.3 100 0.1653
13 3.3 100 0.2237
14 4.3 1,100 3.0249
15 Duration 3.5371 #VALUE!
16
17 Newly defined VBA function #VALUE! #VALUE!
18
19
20
21
22 Checking on formula: the bond duration (with first payment at alpha) should be the duration
23 of the bond with payments at 1, 2, ..., 5 plus (alpha-1):
24
25 testing whether Excel's duration function produces the same result:
26 settlement 5/22/1996
27 maturity 9/8/2000
28 alpha 0.301369863013699
29 coupon 10%
30 ytm 6%
31
32 3.5315 #VALUE!
33
34 Our formula #VALUE!

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E F

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
alpha) should 22
be the duration
23
24
25
26 month 9
27 day 8
28
29
30
31
32
33
34 #VALUE!

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 A B C D

1
USING XIRR TO CALCULATE THE IRR WITH
UNEVEN PAYMENTS
2 Current date 3-Oct-96
3 Annual coupon 89 Paid January 1 for each of next 5 years
4 Maturity date 1-Jan-01
5 Face value 1,000
6 Price of bond 1,123
7
8 Time to first payment 0.2466 #VALUE!
9
10 Date Payment
11 3-Oct-96 -1,123
12 1-Jan-97 89
13 1-Jan-98 89
14 1-Jan-99 89
15 1-Jan-00 89
16 1-Jan-01 1,089
17
18 YTM 7.300% #VALUE!
 Page 686, top

A B C

1
ILLUSTRATION OF CALCULATION
OF YTM OF UNEVEN PERIODS
This spreadsheet illustrates the unevenYTM VBA function:
2 the syntax of this function is
unevenYTM(CouponRate,FaceValue,BondPrice,NumPayments,TimeFirst,epsilon)
3 Coupon rate 7.90%
4 Face value 1,000.00
5 Bond price 1,123.00
6 Number of payments 5
7 Time to first payment 0.25
8 Epsilon 1E-05 <-- Controls the accuracy of the YTM calculation
9
10 YTM #VALUE! #VALUE!
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

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 Page 686, bottom

A B C
1 USING DDURATION AND UNEVENYTM TOGETHER
2 Coupon rate 7.90%
3 Face value 1,000.00
4 Bond price 1,123.00
5 Number of payments 5
6 Time to first payment 0.25
7 Epsilon 1E-05 <-- Controls the accuracy of the YTM calculation
8
9 YTM #VALUE! #VALUE!
10
11 Duration #VALUE! #VALUE!

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