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Using the Bond Duration Add-in Functions

Excel provides two functions that let you date argumentsmust make sense
make bond duration calculations: DURATION collectively, too. For example, your
and MDURATION. Duration, a weighted maturity date must follow the settlement
average measure of the present value of a date.
bond's cash flows, quantifies how a 2. If you use a frequency argument other
change in the bond yield affects the bond than 1, 2, or 4, Excel returns #NUM.
price. 3. If you use a day-count-basis switch
Understanding the Bond Duration Function other than 0, 1, 2, 3, or 4, Excel
Arguments returns #NUM.
Both duration functions use the same set 4. If the settlement day follows the
of six arguments: the settlement date, maturity date, Excel returns #NUM.
the maturitydate, the coupon rate, the 5. If the rate or yield is less than
yield, the coupon frequency, and the day zero, Excel returns #NUM.
count basis. Using the DURATION Function
The settlement date specifies the date The DURATION function calculates a
the bond is settled, or purchased. The Macauley duration given the settlement
maturity datespecifies the date the bond date, maturity date, coupon rate, yield,
matures, or expires. As with the other frequency, and basis. It uses the
add-in financial functions,you may enter following syntax:
the date arguments either as text strings DURATION (settlement, maturity, coupon,
enclosed in quotation marks or asserial yield, frequency, basis)
date values. For example, suppose you want to
The coupon rate argument is the bond's calculate the duration of a bond you
interest rate and is used to calculate purchased on April
coupon payments. 23, 2000, and that will mature on
The yield argument is the bond's annual November 30, 2020. Further suppose that
yield. the coupon rateis 8%, which is paid in
NOTE: Both duration functions assume that four quarterly payments, but that the
the bond's face, or par, value equals bond yield is 7%. If you wantto use the
$100. US (NASD) day count basis of 30 days in a
The frequency argument gives the number month and 360 days in a year, youwould
of coupon payments made each year: you use the following formula to calculate
specify 1 to indicate an annual coupon, 2 this bond's yield:
to indicate a semiannual coupon, and 4 to =DURATION ("4/23/2000","11/30
indicate a quarterly coupon. 2020",.08,.07,4,0)
The basis argument specifies the number The formula returns the value 10.6496.
of days in the month and year assumed for Using the MDURATION Function
the date calculations. You specify the The MDURATION function calculates a
basis as 0 for the US (or NASD) version modified duration given the settlement
of 30 days in a month and 360 days in a date, maturity date, coupon rate, yield,
year; as 1 for the actual number of days frequency, and basis. It uses the
in the month and actual number of days; 2 following syntax:
for the actual number of days in the MDURATION (settlement, maturity, coupon,
month but 360 days in a year; 3 for the yield, frequency, basis)
actual number of days in the month and For example, suppose you want to
365 days in a year; and 4 for the calculate the duration of a bond you
European version of 30 days in a month purchased on April
and 360 days in a year. 23, 2000, and that will mature on
NOTE: Excel uses only the integer portion November 30, 2020. Further suppose that
of the arguments you supply to the add-in the coupon rateis 8%, which is paid in
price and yield date functions. If you four quarterly payments, but that the
enter an argument with decimal values, bond yield is 7%. If you wantto use the
Excel truncates the argument to just its US (NASD) day count basis of 30 days in a
integer component. month and 360 days in a year, youwould
Preventing Common Bond Duration Function use the following formula to calculate
Errors this bond's yield:
The duration functions return an error =MDURATION ("4/23/2000","11/30
value in several predictable cases: 2020",.08,.07,4,0)
1. If you use an invalid date, Excel The formula returns the value 10.4664.
returns #VALUE. Note that this means your




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