A Simplified Approach to Measuring Bond Duration

Authors

  • Jean L. Heck CoIlege of Commerce and Finance, Villanova University, Villanova, PA 19085
  • Terry L. Zivney Collegeof Business, Ball State University, Muncie, IN 47306.
  • Naval K. Modani College of Business Administration, University of Central Florida, Orlando, PL 32816.

DOI:

https://doi.org/10.1016/1057-0810(95)90016-0

Abstract

Because interest rates vary over time, the realized return on a fixed-income investment will depend on the price at which the instrument is ultimately liquidated and the rate at which interim cash flows are reinvested. This variation in realized return, known as interest-rate risk, should be addressed by both individual and institutional investors. Tools for measuring the impact and adjusting for the effects of interest rate changes on fixed-income instrument performance have long been available with duration and its companion adjustment factor, convexity. In this article, a simplified alternative to the traditional complex duration calculation is developed and demonstrated. Thus, anyone who can calculate a bond price can quickly estimate the interest rate risk associated with a bond as well as calculate the expected bond price change for a given change in market yield-to-maturity.

Downloads

Published

1995-06-30

How to Cite

Heck, J. L., Zivney, T. L., & Modani, N. K. (1995). A Simplified Approach to Measuring Bond Duration. Financial Services Review: The Journal of Individual Financial Management, 4(1), 31–40. https://doi.org/10.1016/1057-0810(95)90016-0

Issue

Vol. 4 No. 1 (1995): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1995 JAI Press Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.