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


The amount by which a bond's price increases or decreases as the result of a 1% change in interest rates. When interest rates rise above a bond's own interest rate, its price usually declines because an investor can earn a higher yield with another bond. Likewise, when interest rates fall, the bond's price usually rises. Duration measures how much the price changes and, for that reason, is a measure of a bond's volatility.


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.


In simplified terms, a bond's duration measures the effect that each 1% change in interest rates will have on the bond's market value.

Unlike the maturity date, which tells you when the issuer has promised to repay your principal, duration, which takes the bond's interest payments into account, helps you to evaluate how volatile the bond's price will be over time.

Basically, the longer the duration -- expressed in years -- the more volatile the price. So a 1% change in interest rates will have less effect on the price of a bond with a duration of 2 than it will on the price of a bond with a duration of 5.

References in periodicals archive ?
Faced with these complexities and costs, many businesses decide that comprehensive disaster recovery is too daunting, and instead opt for minimal disaster recovery planning and implementation that covers only the most critical of applications and data.
The WOTC is expanded to include individuals whose principal place of living on August 28, 2005, was in the Core Disaster Area.
Humanitarian charter and minimum standards in disaster response.
During a national disaster, the IRS may postpone tax deadlines, under which the following are eligible for relief under the rules:
They have been very receptive in explaining the tax laws and provisions that apply when a presidential disaster is declared.
Director of Information Technology Keith Fowlkes says a disaster recovery and business continuity plan for information technology and telecommunications--luckily unused, so far--has been in place for about 18 months.
The inability to restore DHS' critical IT systems following a disaster could have negative effects on the performance of mission essential functions," the audit states.
He has published on the psychological consequences of human-made disasters, especially the Chernobyl disaster in Ukraine in 1986.
Disaster Recovery: A Guide to Financial Issues, a colorful 32-page guide, will be offered free of charge by local American Red Cross chapters across the country as a public service to aid people and their families affected by disasters.
One reason is that experts who have examined the potential impact of various terrorist scenarios find little difference in appropriate response from that to a conventional disaster.
Furthermore, there are inherent advantages to online backup and recovery services: namely, should a disaster occur in your business, you want all of your data to be located in a secure remote location, rather than within your own building.
society and anticipating the need for mental health interventions, the Disaster Relief Act of 1974 (1974) mandated, among other services, crisis counseling for all victims.