Bond Duration and Interest-Rate Sensitivity Calculator

Q: What does bond duration actually measure?

Roughly, the percentage change in a bond's price for a 1% change in interest rates, in the opposite direction — a bond with duration of 5 would be expected to lose about 5% of value if rates rise by 1%, and gain about 5% if rates fall by 1%.

Q: Why do longer-maturity bonds have higher duration?

Because more of their cash flows are further in the future, which are more heavily discounted (and more sensitive to rate changes) than near-term cash flows — a 10-year bond is generally more rate-sensitive than a 1-year bond with the same coupon.

Q: Does a higher coupon reduce duration?

Yes, generally — a higher coupon means more cash flow is received earlier (via coupon payments), reducing the weighted-average time to receive the bond's value and therefore its duration, compared to a lower-coupon bond of the same maturity.

Bond assumptions

Macaulay duration

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Modified duration

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Model price	—
Approximate price change	—

Calculation guidance will appear here.

How This Is Calculated

Duration measures a bond's price sensitivity to interest rate changes — approximately, a bond's price moves by its duration percentage for each 1% change in interest rates (in the opposite direction). Longer-maturity and lower-coupon bonds generally have higher duration, meaning greater price volatility when rates move.

Frequently Asked Questions

What does bond duration actually measure? ▼

Why do longer-maturity bonds have higher duration? ▼

Does a higher coupon reduce duration? ▼

Methodology, assumptions and sources

Scope: Computes Macaulay duration and modified duration for a bond, to estimate the bond's price sensitivity to changes in interest rates.

Calculation logic

Macaulay duration = Σ [(t × PV of cash flow at time t) ÷ Bond price] across all coupon and principal cash flows, where PV of each cash flow is discounted at the bond's yield to maturity — this gives the weighted-average time (in years) to receive the bond's cash flows.

Modified duration = Macaulay duration ÷ (1 + Yield to maturity / Compounding frequency per year) — this converts Macaulay duration into a direct measure of price sensitivity.

Approximate percentage price change for a given yield change = −Modified duration × Change in yield (in decimal), used to illustrate the bond's interest-rate risk.

Inputs and assumptions

Assumes a standard fixed-coupon bond with regular coupon payments at the frequency entered — floating-rate notes, callable bonds and other embedded-option structures require different duration measures (effective duration) not computed here.

The linear price-change approximation using modified duration is accurate for small yield changes; for larger yield movements, convexity effects (not computed by this basic calculator) become material.

Exclusions and edge cases

Does not compute convexity, which corrects the duration-based price estimate for larger yield changes — duration alone tends to overstate price declines for large rate rises and understate price gains for large rate falls.

Does not model credit-spread risk separately from interest-rate risk — this calculator addresses interest-rate (duration) risk only.

Sources

No specific external regulatory source applies beyond general market-linked instrument mechanics.

Review status: reviewed and approved by CA Nikhil Gupta on 18 July 2026.