Bond Duration & Convexity Risk
Estimate interest rate risk using Modified Duration and Convexity. Enter values for instant results with step-by-step formulas.
Worked Examples
Example 1: 5-Year Bond
Problem:5% Coupon, 6% YTM, 5 Years.
Solution:Price < Par (Discount). Duration ~4.3 years.
Result:If rates rise 1%, price drops ~4.1%.
Frequently Asked Questions
What is Modified Duration?
It adjusts Macaulay Duration to estimate the percentage change in price for a 1% change in yield.
Why is Convexity important?
For large yield changes (>1%), Duration becomes inaccurate. Convexity corrects this error.
Does a higher coupon reduce duration?
Yes. Higher coupons mean you get cash back sooner, lowering the weighted average time (Duration).
What is Negative Convexity?
Occurs in callable bonds or mortgages (MBS). As rates fall, prices don't rise as much because the borrower might refinance/call the bond.