Duration: drag the maturity
Drag years to maturity. Coupon and yield stay at 5 percent, so the bond stays at par. Macaulay duration rises with maturity but stays shorter than it, because some value arrives as coupons before the face.
Macaulay
4.55 years
DV01
$0.43
Coupon and yield stay at 5 percent, so the bond stays at par of $1,000.00. Duration stays shorter than maturity because coupons arrive first. Illustrative arithmetic, not a hedge or advice.
Modified duration
4.33 years, the percent sensitivity.
In short
- Drag the bar right for a longer maturity and a longer wait.
- Drag it left for a shorter bond whose coupons pull less weight.
- Watch DV01, the dollar move for one basis point, rise with both duration and the years of cash being shocked.
- Focus the handle and use the arrow keys to step the years.
A wait, then a slope, then a dollar
How bond duration works prints all three. Macaulay against modified duration is the wait against the slope. The bond duration calculator is the table. DV01 is modified duration times price over 10,000.
Duration is shorter than maturity on a coupon bond
A zero is the one case where they match. How bond pricing works is the price in the denominator. A basis point is 0.01 percentage points of yield.
Interest-rate sensitivity, not default
Macaulay duration weights promised cash. A high-yield bond can have a short duration and a high chance of default at the same time.
Common questions
Why is duration shorter than maturity?
Because coupons arrive before the face, and they pull the weighted wait forward.
Is DV01 the same as modified duration?
No. Modified duration is a percent. DV01 is money: that percent, times price, over 10,000.
Is this a hedge recipe?
No. It is a par bond on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.