2.1.970 Part 4 Section 3.17.7.101, DURATION

a.   The standard says that duration is defined as the weighted average of the present value of the cash flows and is used as a measure of a bond price's response to changes in yield.

Office treats duration as the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.

b.   The standard indicates that the function is specific to U.S. currency.

Office does not require the function to be specific to any currency.

c.   The standard does not specify day and month adjustments for the basis argument.

In Excel, the basis argument specifies the truncated integer type of day count basis to use, as follows:

Value

Day Count Basis

`0` or omitted

US (NASD) 30/360.Assumes that each month has 30 days and the total number of days in the year is 360 by making the following adjustments:

If the date is 28 or 29 February, it is adjusted to 30 February.

For months with 31 days, all dates with a day value of 31 are changed to day 30, including situations where the first date is 28 or 29 February.

`1`

Actual/actual. The actual number of days between the two dates are counted. If the date range includes the date 29 February, the year is 366 days; otherwise it is 365 days.

`2`

Actual/360. Similar to Basis 1, but only has 360 days per year.

`3`

Actual/365. Similar to Basis 1, but always has 365 days per year.

`4`

European 30/360.The European method for adjusting day counts. Assumes that each month has 30 days and the total number of days in the year is 360 by making the following adjustments:

If the date is 28 or 29 February, it is adjusted to 30 February.

For months with 31 days, all dates with a day value of 31 are changed to day 30, including situations where the first date is 28 or 29 February.

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