Duration as a Measure of Interest Rate Risk

In this section

• Macaulay Duration
  Understand Macaulay duration as the weighted average timing of a bond’s cash flows.
• Modified Duration
  Review modified duration as a practical estimate of bond price sensitivity to yield changes.
• Effective Duration
  Learn when effective duration is used for bonds with embedded options and changing cash flow timing.
• Key Duration Relationships
  Compare how maturity, coupon rate, and yield influence the duration of a bond.
  • Duration and Time to Maturity
    See how longer maturities usually increase duration and deepen sensitivity to rate changes.
  • Duration and Coupon Rate
    Review how higher coupon rates tend to shorten duration by returning cash flows sooner.
  • Duration and Yield to Maturity
    Understand how changes in yield to maturity affect duration and bond price responsiveness.