Financial Terms / duration

Understanding Bond Duration & Interest Rates

Duration is an important concept to consider when measuring time, as it is measured in years.


SUM(end_time - start_time)

How do I calculate the duration?

Using the SUM and COUNT functions in programs such as and Sourcetable, you can calculate the duration of an event or period of time. The formula for this is SUM(end_time - start_time). This formula returns the total number of hours, minutes, and seconds between the start and end times.

What is duration in finance?

Duration is a measure used in fixed-income investing that expresses the weighted average time to receive the cash flows from a bond or other fixed-income investment. It is used to estimate the sensitivity of a bond's price to changes in interest rates. The longer the duration, the more sensitive the bond price is to changes in interest rates.

What is the difference between Macaulay duration and modified duration?

Macaulay duration is the weighted average time until a bond's cash flows are received, while modified duration is a measure of a bond's price sensitivity to changes in its yield. In other words, Macaulay duration considers the time value of a bond's cash flows, while modified duration considers how bond price changes with changes in yield.

Why is duration important in bond investing?

Duration is important in bond investing because it helps investors understand and manage the risk associated with interest rate changes. By understanding a bond's duration, an investor can better predict how changes in interest rates will affect the bond's price. This can help in making informed decisions about which bonds to buy or sell, and when to do so.

Key Points

How do I calculate duration?
SUM(end_time - start_time)
Key Rate Duration
Key rate duration is a duration measure that shows the sensitivity of a security's price to changes in interest rate. It measures the expected change in price of a security for a one percentage point change in interest rates.
Understanding Key Rate Duration
It is important to understand key rate duration in order to assess the risk associated with a security. Key rate duration can be used to compare the sensitivity of different securities to changes in interest rates. It is also useful in determining the duration of a portfolio of investments.
Calculating Key Rate Duration
Key rate duration is calculated by taking the present value of the cash flows of a security and dividing it by the change in price of the security for a one percentage point change in interest rates. The result is then expressed as a percentage.
Key rate duration can be used in asset-liability management, hedging strategies and portfolio management. It is also useful for evaluating the risk of a security or portfolio of investments.

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