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What it calculates: Macaulay Duration, Modified Duration, Bond Price.
Updated 5 June 2026 · Transparent assumptions
Duration is the weighted average time to get your money back
A five-year 6% bond does not return your money in five years — it returns some of it every six months in coupons and the rest at maturity. Macaulay duration weights each payment by when it arrives and by how much of the present value it represents, giving 4.47 years: the average wait, not the final date.
Duration is always shorter than maturity for a coupon bond, and equal to maturity only for a zero-coupon bond, which pays nothing until the end. A higher coupon shortens duration because more of the value arrives early; a lower coupon lengthens it.
4.21 means a one-point yield rise costs about 4.21% of the price
Modified duration adjusts Macaulay duration for the yield, and it converts directly into price sensitivity: a one percentage point rise in yields moves the price by roughly minus 4.21%. That is the practical form, and it is why bond risk is usually quoted in duration rather than in years to maturity.
Comparing two bonds on duration rather than maturity is what makes their risk comparable. A ten-year high-coupon bond can have a shorter duration, and therefore less interest-rate risk, than a seven-year low-coupon one — a conclusion that maturity alone would get backwards.
Weight each holding’s duration and you get the portfolio’s
Portfolio duration is the value-weighted average of the individual durations, which makes it a genuinely useful management tool. A manager expecting rates to rise shortens portfolio duration; one expecting a fall lengthens it. The target is set at portfolio level and met by choosing individual bonds.
It also enables immunisation: matching portfolio duration to the horizon over which the money is needed makes the portfolio’s value at that date roughly insensitive to rate moves, because price losses and reinvestment gains offset. That is the core technique behind liability-driven investing.
It understates gains and overstates losses on large yield moves
The price-yield relationship is a curve, and duration is the straight line tangent to it. For small yield changes the approximation is close. For large ones it drifts, and always in the investor’s favour: actual prices rise more than duration predicts when yields fall, and fall less than predicted when yields rise.
Convexity measures that curvature and is the second-order correction. It matters most for long-dated, low-coupon bonds and for large rate moves — precisely the cases where a duration-only estimate is most wrong. Neither is modelled here beyond the linear term.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Returns are assumptions, not guarantees. Actual results may vary because of market performance, taxes, fees, inflation, and timing. This is an educational projection, not investment advice.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested Macaulay duration as the present-value-weighted average time of the cash flows, checked against a hand-summed five-year par bond.
Tested that a zero-coupon bond has a duration equal to its maturity and that any coupon-paying bond has a shorter one.
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