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.
- [Voiceover] In the previous movie,…I showed you how to evaluate a bond…using the duration function.…The duration function shows the sensitivity…of an investment to its yield, that's in terms of its…time frame and the number of coupon payments.…Another way to evaluate a bond is to use the…modified duration, or m duration function.…The m duration function is a more conservative…way of evaluating an investment than the regular…duration calculation because m duration…is less sensitive to changes in yield.…It uses a different formula.…
In this movie I will show you how to use m duration,…my sample files calculating modified duration 0408,…and you can find it in the Chapter Four folder…of the exercise files collection.…To create an m duration formula you need to know…six different things.…The first is the settlement date, that's the date…that you actually take possession of the security.…Next is the maturity date, that is when the investment…matures and you receive your principal plus…any accumulated interest.…
Coupon interest is the amount of money that you're paid…
- Define NPER.
- Determine the appropriate method of depreciation to use on tax returns.
- Recall which function is used to evaluate a fixed-rate investment or an annuity that makes periodic payments to the beneficiary.
- Identify the term for the rate of return earned from a zero-risk investment.
- Explain the purpose of the XNPV function.
- Recognize the type of bond that pays interest before it matures.
- Name three arguments needed to use the TBILLYIELD function.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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