# How do you calculate duration of a bond portfolio?

**Duration**= Present value of a

**bond's**cash flows, weighted by

**length**of time to receipt and divided by the

**bond's**current market value. As an example, let's

**calculate**the

**duration**of a three-year, $1,000 Company XYZ

**bond**with a semiannual 10% coupon.

Hereof, how do you calculate duration of a bond?

The **formula** for the **duration** is a **measure** of a **bond's** sensitivity to changes in interest rate and it is **calculated** by dividing the sum product of discounted future cash inflow of the **bond** and a corresponding number of years by a sum of the discounted future cash inflow.

**formula**is complicated, but what it boils down to is:

**Duration**= Present value of a bond's cash flows, weighted by length of time to receipt and divided by the bond's current market value. As an example, let's calculate the

**duration**of a three-year, $1,000 Company XYZ bond with a semiannual 10% coupon.

In respect to this, what is duration on a bond?

**Duration** is an approximate measure of a **bond's** price sensitivity to changes in interest rates. If a **bond** has a **duration** of 6 years, for example, its price will rise about 6% if its yield drops by a percentage point (100 basis points), and its price will fall by about 6% if its yield rises by that amount.

**Duration** is **important** to **bond** investors because it acts as a guide for how sensitive a **bond** (or **bond** portfolio) is to changes in interest rates. Specifically, when yields rise, a **bond's** price will fall by an amount approximately equal to the change in the yield, multiplied by the **duration** of the **bond**.