Another way to evaluate a bond is to use the modified DURATION, or MDURATION function. The MDURATION function divides a bond’s duration by 1 plus the market yield divided by the number of coupon payments per year. The resulting figure is more conservative than the straight duration calculation because it’s less sensitive to changes in yield.
- [Instructor] In the previous movie,…I showed you how to evaluate a bond…by using the duration function.…Another way to evaluate a bond is to use the…modified duration, or mduration function.…The mduration function is a more conservative…evaluation than the straight duration calculation…because it is less sensitive to changes in yield.…I'll demonstrate how to use the mduration function…and also compare it directly to duration.…In this movie, my sample file is…CalculatingModifiedDuration_04_08…and you can find it in the Chapter 4 folder…of your exercise files collection.…
Mduration uses the same arguments as the duration function,…so in cell C3, you can see the settlement date.…That's the date that you actually take possession…of the security.…C4 is the maturity date.…The date the investment ends.…Coupon interest in cell C5 is the amount…of interest you receive spread out…among your coupon payments in a year.…Yield in C6 is the annual percentage yield,…or the amount that your principal goes up each year.…
That's independent of the coupon interest.…
Author
Curt Frye
Released
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- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
Duration
Views
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Introduction
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Welcome58s
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1. Analyzing Loans, Payments, and Interest
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2. Calculating Depreciation
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3. Determining Values and Rates of Return
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4. Calculating Bond Coupon Dates and Security Durations
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5. Calculating Security Prices and Yields
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6. Analyzing Simulation Results
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Conclusion
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Next steps1m 12s
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Video: Calculating the duration of a security using the Macauley method (MDURATION)