Duration is a term used in fixed income investing to describe the sensitivity of a security's price to changes in interest rates. It is typically expressed as a number of years. The higher the duration, the greater the price sensitivity.

Duration can be used to measure the risk of a portfolio, as well as to make investment decisions. For example, a portfolio with a longer duration is generally more sensitive to interest rate changes than a portfolio with a shorter duration. As a result, a portfolio manager may use duration to help manage the overall risk of the portfolio.

There are a number of different ways to calculate duration, but the most common is the modified duration. This approach adjusts for the fact that a security's price will not change by the same amount as the change in interest rates.

The use of duration in fixed income investing is not without risk. In particular, duration-based strategies may be subject to interest rate risk, which is the risk that interest rates will rise and fall over time. As a result, investors should carefully consider their investment objectives and risk tolerance before using this approach. What is duration and maturity? Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. It is expressed as a number of years.

The duration of a simple bond with no embedded options can be calculated using the following formula:

D = N * (1 + y) / (1 + r)

Where:

D = duration

N = number of years to maturity

y = annual yield

r = annual coupon rate

For example, a bond with 10 years to maturity and a coupon rate of 5% that is currently yielding 6% has a duration of 8.16 years.

The higher the duration, the greater the price movement of the bond in response to a change in interest rates. In general, the longer the duration of a bond, the greater the price volatility.

Maturity is the date on which the principal amount of a loan or security is due to be paid.

For example, a bond with a face value of $1,000 that matures in 10 years has a maturity date of 10 years from the date of issue.

At maturity, the bondholder will receive the $1,000 face value of the bond, plus any interest that has accrued.

### What is duration explain?

Duration is a measure of the sensitivity of a bond's price to changes in interest rates. It is often expressed as a number of years. The higher the duration, the greater the price sensitivity.

Bonds with a longer duration are more sensitive to interest rate changes than bonds with a shorter duration. For example, a bond with a 10-year duration will be more affected by a 1% interest rate change than a bond with a 5-year duration.

The duration of a bond is affected by its coupon rate, maturity date, and interest rate environment. In general, bonds with higher coupon rates, longer maturities, and lower interest rates have longer durations.

Duration is an important concept for bond investors to understand because it can help them manage the interest rate risk of their portfolios.

##### What is duration Wikipedia?

Duration is a measure of a bond's price sensitivity to changes in interest rates. It is used as a measure of a bond's volatility and is a key ingredient in the determination of a bond's price. The higher the duration, the higher the price sensitivity. For example, a bond with a duration of 5 years will be more volatile than a bond with a duration of 4 years.

The formula for duration is:

Duration = -∂P/∂r

where P is the bond's price and r is the interest rate.

The duration of a bond is inversely related to the interest rate. This means that when interest rates go up, the duration of a bond goes down, and vice versa.

The duration of a bond is affected by a number of factors, including the coupon rate, the maturity, and the type of bond. For example, a bond with a higher coupon rate will have a lower duration than a bond with a lower coupon rate. This is because the higher coupon payments act as a buffer against changes in interest rates.

Similarly, a bond with a longer maturity will have a higher duration than a bond with a shorter maturity. This is because the longer the bond's maturity, the longer the bond's price is exposed to changes in interest rates.

Finally, bonds that are more volatile (such as junk bonds) will have higher durations than bonds that are less volatile (such as Treasury bonds). This is because investors require a higher return to compensate them for the increased risk.

In general, the duration of a bond is a good measure of the bond's price sensitivity to changes in interest rates. The longer the duration, the more volatile the bond's price will be.

What is duration and how it is calculated? Duration is a measure of a bond's price sensitivity to changes in interest rates. It is calculated by taking the weighted average of the present value of all cash flows, adjusted for the bond's current price. The weighting is based on the time to each cash flow. For example, a bond with two years to maturity and a coupon rate of 5% would have a duration of approximately 2.5 years.

The formula for duration is as follows:

Duration = Σ tCFt / (1+r)t

where:

Σ tCFt = the sum of the present value of all cash flows

r = the bond's current yield

t = the time to each cash flow

CFt = the cash flow at time t

#### What's effective duration?

Effective duration is a measure of a bond's sensitivity to changes in interest rates. It is used to estimate the price change of a bond in response to a change in interest rates. The higher the effective duration, the greater the price change in response to a change in interest rates.

For example, if a bond has an effective duration of 5 years, and interest rates rise by 1%, the price of the bond is expected to fall by 5%.