Duration
A measure of the weighted timing of bond cash flows and price sensitivity to interest rates.
Plain languagePractical exampleConnected reading
01
What is it?
A measure of the weighted timing of bond cash flows and price sensitivity to interest rates.
02
Why does it matter?
It helps estimate the impact of a rate shock on a bond or bond fund.
03
How should it be read?
Distinguish Macaulay from modified duration and use effective duration for option-embedded instruments.
04
Common mistake
Treating duration as identical to remaining maturity.
A simple example
With modified duration of 5, a one-point rate rise may reduce price by roughly 5%; this is a linear estimate.