duration

Duration

The measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

Notes:

Duration is measured in years however, do not confuse it with a bond's maturity. For all bonds, duration is shorter than maturity except zero coupon bonds, whose duration is equal to maturity.

See also: Basis Point, Effective Duration, Key Rate Duration, Macaulay Duration, Modified Duration, Zero Coupon Bond

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Duration

A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.

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duration

The number of years required to receive the present value of future payments, both interest and principal, from a bond. Duration is determined by calculating the present value of the principal and each coupon and then multiplying each result by the period of time before payment is to occur. The concept of duration is used to relate the sensitivity of bond price changes to changes in interest rates. Also called mean term.