macDuration {bondAnalyst}

Calculates Macaulay Duration of a traditional Fixed-Rate Bond.

Description

Calculates Macaulay Duration of a traditional Fixed-Rate Bond.

Usage

macDuration(n, ytm, coupon, maturityVal, daysCpnToSettle, daysCouponPeriod)

Arguments

n

A number.

ytm

A number.

coupon

A number.

maturityVal

A number.

daysCpnToSettle

A number.

daysCouponPeriod

A number

Details

According to Adams and Smith (2019),the duration of a bond measures the sensitivity of the bond⁠'⁠s full price (including accrued interest) to changes in bond⁠'⁠s yield-to-maturity or, more generally, to changes in benchmark interest rates. Duration estimates changes in the bond price assuming that variables other than the yield-to-maturity or benchmark rates are held constant. Most importantly, the time-to-maturity is unchanged. Therefore, duration measures the instantaneous (or, at least, same-day) change in the bond price. The accrued interest is the same, so it is the flat price that goes up or down when the full price changes. Duration is a useful measure because it represents the approximate amount of time a bond would have to be held for the market discount rate at purchase to be realized if/when there is a single change in interest rate. If the bond is held for the duration period, an increase from reinvesting coupons is offset by a decrease in price if interest rates increase and a decrease from reinvesting coupons is offset by an increase in price if interest rates decrease. Macaulay duration is named after Frederick Macaulay, the Canadian economist who first wrote about this measure in a book published in 1938. This method calculates the Macaulay duration of a traditional fixed-rate bond (Adams & Smith, 2019). Here, n is number of periods, ytm is yield-to-maturity, coupon is dollar value of the coupon payment,maturityVal is maturity Value,daysCpnToSettle is the number of days from the last coupon payment to the settlement date, and daysCouponPeriod is the number of days in the coupon period.

Value

Input values to six arguments n , ytm, coupon, maturityVal, daysCpnToSettle and daysCouponPeriod.

Author(s)

MaheshP Kumar, Clare Matuka

References

Adams,J.F. & Smith,D.J.(2019). Understanding Fixed‑Income Risk and Return. In CFA Program Curriculum 2020 Level I Volumes 1-6. (Vol. 5, pp. 237-299). Wiley Professional Development (P&T). ISBN 9781119593577, https://bookshelf.vitalsource.com/books/9781119593577

Examples

macDuration(n=10,ytm=0.104,coupon=8,maturityVal=100,daysCpnToSettle=0, daysCouponPeriod=0)
macDuration(n=8*2,ytm=0.06/2,coupon=3,maturityVal=100,daysCpnToSettle=57,daysCouponPeriod=180)