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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 ?
The test words and phoneme boundaries were manually tagged using the speech analysis software Praat (Boersma, Weenink 2014-2015), after which segment durations were extracted from the annotated TextGrid using a script.
To calculate the DGAP of a life insurer, one usually has to calculate the durations of individual assets and liabilities.
Furthermore, sleep duration has been found to be associated with a wide range of quality of life measures, such as social functioning, mental and physical health, and early death.
9) A bond's convexity is a measure of the sensitivity of the bond's duration to changes in its yield to maturity.
The prospectus for the DoubleLine Long Duration Total Return Bond Fund is available at the following online address: http://doublelinefunds.
This study was the first to evaluate associations of sleep duration at midlife and later life, and change in sleep duration over time, with memory in 15,263 participants of the Nurses' Health Study.
9) This stratification may be necessary because the type of disability is a major factor in determining the type, duration and intensity of the treatment a client will receive.
As training progressed, the level of responding diverged between groups with equal CS and cover-cue durations (open symbols) versus those with unequal CS and cover-cue durations (filled symbols).
Changes with age in the level and duration of fertility in the menstrual cycle.
Given the evident importance of hospitals' compliance with the initiative's criteria for prolonging the duration of breast-feeding, "monitoring of compliance in designated hospitals is indispensable for promoting the optimal effects of the BFHI," they contend.
However, for individual retirement accounts and institutional investors where taxes are not a consideration, zero-coupon bonds with maturity lengths equal to durations offer significant advantages in accumulating funds for known obligations.
Moreover, these second remissions are uniquely characterized by a duration that exceeds the duration of the first remission (P<.