Duration


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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.

Duration

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.

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.

Duration.

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 ?
After calculating the modified and effective durations of reserves for policies that have different years to maturity, we find that the duration of the policy reserve may be negative and may have a figure far exceeding the policy's maturity.
Collectively, four experiments indicate that the cover-stimulus effect is diminished when cover-stimulus duration is either shorter (Williams, 1994; the present Experiment 1) or longer (Cooper et al.
Airline Saudia Duration 16 hours, 55 minutes Distance 13,409km
Short consonants in this position have the same duration as do short consonants between the first and second syllable.
It was glucose tolerance, as measured by a glucose tolerance test administered two hours after activity, that improved significantly only in the high intensity, long duration group.
In order to analyse EMG responses according to SMT force events, seven time windows (see figure 2) that spanned across the entire SMT force curve were defined: a "Baseline" of 500ms duration to observe EMG activity before the SMT, a "Preload phase" of 1000ms, a "Thrust phase" and four phases which successively followed the "Thrust phase" with two windows of 250ms and two windows of 500ms (referred as "Post-SMT1" to "Post-SMT4" in figure 2 and 3).
Because the Treasury did not target a policy rate, our time period is an ideal laboratory to identify the effects of altering the duration and scarcity of Treasury bonds outstanding without a signaling channel confounding our measurements.
Short sleep duration was significantly more common among the 77% of subjects who reported experiencing combat (OR, 0.
The fact that an identified gene has an effect on sleep duration [may] lead to a molecular understanding of sleep regulation," Block continues.
Symptom charts were used to track the duration and severity of each patient's symptoms.
A number of practitioners contend that the touchstone for determining whether a payment is a capital expenditure is whether it creates a benefit with a duration in excess of one year; a payment that creates a benefit with a duration of one year or less is a deductible expense.
One of the puzzles left by the recent decline of the unemployment rate is the relatively long duration of the spells of unemployment that are occurring.