Effective Duration Calculator
The Effective Duration Calculator estimates a bond's price sensitivity to interest-rate changes using prices under small yield shifts. Enter the prices if yield falls and rises, the current price, and the yield change.
Formula
Effective Duration = (P− − P+) ÷ (2 × P0 × Δy)
- P− is the price if yields fall by Δy; P+ is the price if yields rise by Δy.
- Duration of 5 means roughly a 5% price change for a 1% change in yield.
P− 1030, P+ 970, price 1000, Δy 0.5%
Inputs
- Price if Yield Falls: 1030 Rs
- Price if Yield Rises: 970 Rs
- Current Price: 1000 Rs
- Yield Change (±): 0.5 %
(1030 − 970) ÷ (2 × 1000 × 0.005) = 6.0 years.
Frequently asked questions
What does effective duration tell you?
It estimates how much a bond's price will move for a given change in interest rates, capturing options and embedded features.