freq - Number of coupon payments per year (annual = 1, semi-annual = 2, quarterly = 4).
basis - [optional] Day count basis (see below, default =0).
In finance, duration is a measure of the price sensitivity to changes in interest rates for an asset that pays interest on a periodic basis, like a bond. Duration can be used by financial managers as part of a strategy to minimize the impact of interest rates changes on net worth. Modified duration is a measure of the expected change in a bond's price to a 1% change in interest rates.
Excel's MDURATION function returns the modified Macauley duration for an assumed par value of $100. The Macaulay duration is the weighted average term to maturity of the cash flows from a security, which can be calculated with Excel's DURATION function.
In the example shown, we want to calculate the modified duration of a bond with an annual coupon rate of 5% and semi-annual payments. The settlement date is 15-Dec-2017, the maturity date is 15-Sep-2027, and the day count basis is US (NASD) 30/360. The formula in F5 is:
In Excel, dates are serial numbers. Generally, the best way to enter valid dates is to use cell references, as shown in the example. To enter valid dates directly inside a function, you can use the DATE function. To illustrate, the formula below has all values hardcoded, and the DATE function is used to supply each of the two required dates:
The basis argument controls how days are counted. The DISC function allows 5 options (0-4) and defaults to zero, which specifies US 30/360 basis. This article on wikipedia provides a detailed explanation of available conventions.
The Excel DURATION function returns the annual duration of a security with periodic interest payments, calculated with the Macauley duration formula.
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