Definition
Duration measures how much a bond's price will change when interest rates move. Higher duration means greater sensitivity to rate changes. It's expressed in years and represents the weighted average time to receive all cash flows. A bond with 5-year duration drops about 5% if rates rise 1%.
Formula
Modified Duration ≈ Macaulay Duration / (1 + Yield)
Example
A bond with 7-year duration will decline approximately 7% in price if interest rates increase by 1%.
FAQ
What is Duration (Bond)?
A measure of a bond's price sensitivity to interest rate changes.
How do you calculate Duration (Bond)?
A common formula for Duration (Bond) is: Modified Duration ≈ Macaulay Duration / (1 + Yield)
Why is Duration (Bond) important?
Duration (Bond) helps investors evaluate fixed income and make more informed decisions.