I'm trying to understand why Macaulay Duration is recalculated after each coupon payment. I can see why I want to know the duration when purchasing a bond - to figure out how long till I recoup my initial investment. Yet the formula continuously recalculates and grows as each coupon is received.

Should I be keeping the Macaulay Duration result and keeping a running total to know when it has elapsed and using the latest Macaulay Duration to keep the Modified Duration up to date? Or am I misusing this formula entirely?


Look at it this way - a 10 year zero coupon bond has a duration of 10 years. But a year later, its duration is 9 years, as that's the time left. For bonds with a coupon, the duration changes both as time passes and as the coupons are paid out.

As far as the rest of the question goes, I think you may be misusing the concept, it's more about sensitivity to interest rate changes than about recouping your investment.

  • Ah yep, turned out I had messed up my formulas in Excel - I was seeing the duration rise after a coupon was received. – John D Jul 2 '12 at 11:06

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