A way to measure part of the risk in a bond or bond fund. Duration tells you how long it will take to recoup your principal. It's a complicated calculation, so you'll have to get the number from your fund company or bond dealer, but it makes for a handy way to judge interest rate risk. If a bond or a bond fund has a duration of seven years, a 1% drop in interest rates will raise its value by 7%, while a 1% rise in interest rates will lower its price by 7%.
A weighted average of the cash flows for a fixed income instrument, expressed in terms of time. Embedded Derivatives ( see also Structured Notes) Derivative contracts that exist as part of securities.
A measure of price volatility. In mortgage-backed securities trading, a measure of an instrument's price sensitivity to changes in yields.
A measure of the timing of the cash flows ( i.e., the interest payments and the principal repayment) to be received from a given fixed income security. The duration of the security is equal to (a) the sum of the present values of each of the cash flows weighted by the time to receipt of each cash flow, divided by (b) the total of the present values of the cash flows. The duration of a security is a useful indicator of its price volatility for given changes in interest rates. Duration is also a useful concept in assessing the reinvestment risk associated with a given portfolio or the interest rate risk associated with matching particular interest-rate-sensitive assets and liabilities. Compare: CONVEXITY.
Referring to a bond or other fixed rate investment: the number of years it would take to receive the present value of future payments, including both interest and principal, from the bond.
A measure of the price sensitivity of a financial instrument to changes in interest rates; The greater the duration of a bond, the greater its price volatility with respect to interest rate changes; Average time to receipt of Present Value of cashflows
The measure, expressed in years, of a fixed-income security's price sensitivity to changes in interest rates.
An estimate of the volatility or sensitivity of the market price of a bond to changes in interest rates-it measures the weighted average time until cash flow repayment.
Gauge of price sensitivity to interest rates. Expressed in years, duration shows the weighted average time for an investor to realize the currently stated yield.
The change in value of a fixed income security resulting from a 1% change in interest rates. Stated in years (i.e. a 5 year duration means the bond will fall about 5% in value if interest rates rise by 1%). Or more generally, a period of time.
A measure of how much a bond's price inversely fluctuates with changes in prevailing interest rates.
The change in the value of a fixed income security that will result from a 1% change in interest rates. Duration is stated in years. For example, a 5 year duration means the bond will decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%.
A measure of the sensitivity of bonds to changing interest rates. Duration takes into account not only the redemption date but also the dates on which interest (coupon payments) are paid and the amount at such interest. Duration is an important measure of the interest rate sensitivity of a fixed interest portfolio and a more sophisticated measure of the maturity of the holdings in that portfolio.
The measure, expressed in years, that reflects the weighted maturity of a fixed income investment's cash flows. Duration is used in determining the sensitivity of a bonds price performance with respect to changes in the interest rate environment. EXTRAORDINARY REDEMPTION A redemption provision that occurs under an unusual circumstance such as a natural disaster, the destruction or condemnation of the facility that has been financed, or a change in the tax code. FACE VALUE The par value of a bond that appears on the face of the instrument, representing the amount that the issuer promises to repay at maturity; also, the amount on which the annual interest due is computed.
Measure of the sensitivity of a bond or bond fund to changes in interest rates. The lower the duration, the less sensitive a bond or bond fund is to interest rate changes.
Expressed in years, duration is a measure of how sensitive a bond or bond fund's price is to interest-rate changes. Generally, the shorter the duration, the less sensitivity to changes.
Represents the weighted average term to maturity of Bond cash flows (coupon and principal maturity) expressed in present value terms. This measure is generally used to reflect the sensitivity of a bond's price to changes in interest rates.
This is a tool used to calculate the average holding period of the assets in a debt scheme, and can help, particularly Modified Duration, in estimating the sensitivity of a fund to incremental yield movements.
A maturity measure which accounts for the dates on which interest is paid and the amount of interest along with the redemption date. It is the time-weighted present value of all cash flows divided by the bond price.
An increasingly popular measurement of the volatility (risk) of bond or bond fund prices relative to changes in interest rates. More complex than simply knowing that long-maturity bonds are more volatile than short-maturity bonds, duration is calculated by considering the present values of future cash flows from the bond, combining the size of the bond's coupon with the time to maturity. Two thirty-year bonds, for instance, with different coupons, will have different durations. (see also Average Maturity)
Duration as measured by the actual changes in a security's price.
The weighted-average time (in years) to maturity where the weights are the present values of all future cashflows. Duration is a measure of price sensitivity, where a security with a duration of 1 will appreciate or depreciate 1% given a 100 basis point change in yield.
Macaulay duration that has been modified to measure the price sensitivity of a fixed-income security to small changes in yield. Cash flows from the security are assumed to be interest-rate independent.
The weighted maturity of a fixed-income investment's cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.
The weighted average term to maturity of all the cash flows of a bond or bond portfolio where the weights are the present values of the cash flows.
Duration is a measure of a bond price's volatility resulting from changes in interest rates. Roughly speaking, all things being constant (no currency movements, no credit loss etc), a duration of 6.2 years means that a 1% rise in bond yields will result in a 6.2% capital loss on a fund, and conversely, a 1% fall in bond yields will result in a 6.2% capital gains for a fund.
A measure of bond price sensitivity to yield changes, expressed in years. The higher the duration, the greater the price sensitivity. Higher duration bonds tend to outperform in a rising market and underperform in a bear market. Duration is similar to, but much more precise than average life. The original method of calculation was devised by Frederick Macaulay in 1938. (c.f. Adjusted duration).
This is a measure of the dollar-weighted average time until receipt of all cash payments from a fixed-income security expressed in years. "Macauley duration" is simply the average time to receipt of all the scheduled interest and principal payments on a bond. "Modified duration" adjusts the Macauley duration to accurately measure how much a bond's price can be expected to fall if interest rates rise by a certain percentage, or vice versa.
A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.
measure of the sensitivity of a portfolio to movements in market yields by determining the time-weighted average of the present values of all future cash flows of a security or a portfolio, discounted at current interest rates.
Time-weighted present value of payments. Also the coefficient used to measure the risk of a bond. Macaulay's duration expresses the average remaining term to maturity of a bond, while the modified duration gives an approximate indication of the sensitivity of the price of a bond or a bond portfolio to a change in interest rates. The former is expressed in years, the latter as a percentage. If the investment horizon is the same as the duration of the portfolio, the portfolio is said to be immunised against interest-rate changes, i.e. its value will not change if there is a change in interest rates.
A measure of the price volatility of fixed-income securities, duration is the weighted average of the present values of all the cash flows associated with a fixed income security, expressed in years.
A measure of the sensitivity of an instrument to the movement of interest rates. Duration changes when interest rates change and also as a security approaches maturity.
a measure of interest rate risk. It measures the price volatility of a bond to changes in interest rates. The greater the duration, the greater the price volatility of the bond.
Ratio in investment mathematics that is calculated as the sum total of the weighted payment dates of a financial instrument. The duration can thus also be considered as a yardstick for the interest rate risk associated with a financial instrument.
Is computed by using zero coupon equivalencies to discount all the cash flows of a credit instrument. This statistic is a surrogate for the expected life of the security. In general, the term refers to a quantification of a bond as to its yield and price sensitivity. It should be noted that duration is additive. This means that assets, liabilities, swaps, and other credit instruments can be added to arrive at a portfolio or book duration. Some guidelines are: Duration of a zero coupon is its maturity. Duration of a coupon security is less than its maturity. Duration extends with maturity. Duration is inversely related to coupon rate. Duration is inversely related to the market rate. See Effective Duration, Macaulay Duration, and Option Adjusted Duration.
Duration is a time measure of a bond's interest-rate sensitivity, based on the weighted average of the time periods over which a bond's cash flows accrue to the bondholder. The shorter the duration, the less sensitivity a bond has to interest rates.
An indication of a bond fund's price sensitivity to changes in interest rates.
The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.
A term used to measure the average maturity of a fixed interest bond. This is usually shorter than the period to redemption, reflecting the cashflow benefit of interest payments..
The average time (expressed in years) it takes investors to receive the present value of the future cash flows on their investment. It is used to measure the sensitivity of bond prices to interest rate changes (the shorter the duration, the less the bond's price will rise or fall in value when interest rates change). Duration is affected by maturity, the coupon, and the time interval between payments. Other things being equal, a bond with a higher coupon will have a shorter duration, while zero-coupon bonds have the longest.
A measure of a bond fund's price sensitivity to interest rates. The longer the duration, the more sensitive a bond's price will be to changes in interest rates.
A measure of the sensitivity of bond prices to changing interest rates.
A measure of a bond price's sensitivity to a 100-basis point change in interest rates. A duration of 8 would mean that, given a 100-basis point change up/down in rates, a bond's price would move up/down by 8%.
The weighted average of the remaining maturity of the cash flows (discounted to present value) scheduled to be received under the instrument. Duration is a calculation that seeks to measure the price sensitivity of a bond or a bond fund to changes in interest rates. It measures bond price sensitivity to interest rate changes more accurately than maturity because it takes into account the time value of cash flows generated over the bond's life.
Duration measures bond price volatility by calculating the weighted average term-to-maturity of a bond's cash flows, where the weights are the present value of each cash flow as a percentage of the bond's full price. Duration rises with maturity, falls with the frequency of coupon payments, and falls as current yields rise (higher yields reduce the present value of the cash flows). σ [(t) (PVcf)](approx.) = bond price t = year of cash flow PVcf = present value of cash flow
The sensitivity of a bond (or a bond fund) to interest rate changes. A bond with a duration of five years will go down in price by 5% if interest rates increase by 1%.
This statistic is commonly used as a risk measure for fixed income instruments (e.g., bonds). It measures the amount of time required for the average dollar to be returned to the investor, through principal, coupon, or other payments. More importantly, it indicates the percentage change in the price of a bond or other fixed income instrument in response to a one percentage point change in market interest rates. Bonds are commonly categorized into risk categories as follows: short term (less than 3.5 years), intermediate term (3.5 - 6.0 years), and long term (over 6 years). A bond's duration will almost always be shorter than its maturity, with the exception of zero-coupon bonds, for which maturity and duration are equal.
A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
A measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
The weighted average of the present value of a bond's coupon payments and principal, expressed in years.
The duration of a bond is worked out on the basis of its remaining term to maturity and the interest it will pay, and is a measure of the bond's sensitivity to interest rate changes. Let us take an example of a bond with a duration of 5 years. If interest rates fall by 1%, the price of the bond will increase by approx. 5% (i.e. 5 x 1). By contrast, if interest rates rose by x%, the price would fall by roughly five times x%.
The weighted average term of a security's cash flows. The longer the duration, the larger the price movement given a 1bp change in the yield.
A measure, expressed in years, of a bond's sensitivity to interest-rate changes. Typically the shorter the duration, the more stable the bond. earnings per share: Portion of a company's profit allocated to each outstanding share of common stock. For instance, a corporation that earned $10 million last year and has 10 million shares outstanding would report earnings of $1 per share. This figure is calculated after paying taxes and after paying preferred shareholders and bondholders.
A measure of the average maturity of a bond's promised cash flows; used to estimate a bond's price sensitivity to changes in interest rates. Also a tool to help judge the volatility or risk of a bond (or bond fund).
(Durée) The duration of a bond represents the average value of payments (coupons and principal) at maturity, weighted by their present (discounted) value. Where a bond has no coupons, its duration is equal to its maturity; in all other cases, it is shorter. The higher the coupon rate and the more frequent the coupon payments, the shorter the duration. Duration measures how sensitive bond prices are to changes in interest rates. The longer the duration, the more it amplifies the impact of interest rate movements on the price of a bond.
A measure which reflects estimated price sensitivity to given changes in interest rates. For example, for an interest rate change of +1.0%, a portfolio with a duration of 5 years would be expected to experience a price decline of 5.0%.
A measure of the price variability of a security relative to changes in interest rates. For a given change in interest rates, high (or "long") duration instruments experience large price changes, whereas low (or "short") duration instruments experience small price changes. Duration is the most basic risk factor of a security in determining a hedge.
The measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.
the time a bond takes to yield face value; duration will be shorter than maturity, except in the case of zero-coupon bonds, which have a maturity which equals duration.
Measured in years is an approximate measure of the portfolio's sensitivity to a parallel shift in interest rates.
Duration estimates how much a bond's price fluctuates with changes in comparable interest rates. If rates rise 1.00%, for example, a fund with a 5-year duration is likely to lose about 5.00% of its value. Other factors also can influence a bond fund's performance and share price. A bond fund's actual performance may differ. Exchange Privilege: An option enabling mutual fund shareholders to transfer their investment from one fund to another within the same fund family as their needs or objectives change. Typically, funds allow investors to use the exchange privilege several times a year for a low or no fee per exchange.
The measurement of sensitivity of a security's market value or price. It is the average time until receipt of the weighted present value of the cash flows, expressed in years.
A measurement of the price volatility of a bond, representing the approximate change in price per 1% change in yield. Thus a bond with a duration of 4 would change in price by 4% for each 1% change in yield. A higher duration indicates a higher risk of price fluctuations. Long-term bonds tend to have the greatest durations.
a measure of the present value weighted average maturity of a bond. Quoted in years, duration can be used to measure the sensitivity of the present value of a bond to changes in market interest rates
A mathematical measure of a bond's sensitivity to changes in interest rates. Duration is stated in years; the shorter the duration, the less volatility you can expect from the bond.
Measures a bondâ€(tm)s average life on a present-value basis, incorporating yield, coupons, final maturity and call features. The lower the stated or coupon rate of a bondâ€(tm)s interest, the longer its duration.
A term used in fixed interest markets, reflecting a fund's sensitivity to changes in interest rates. Duration measures the average time required to receive all payments from a security, principal as well as interest, taking into account its eventual maturity and the frequency and amount of the income payments. The longer a fund's duration, the greater is its sensitivity to long-term interest rate movements.
The measure of how long, on average, the holder of a bond has to wait before receiving cash payments. Expressed as a weighted average of the times when payments are made with the weight applied to time being equal to the proportion of the bond's total present value provided by the payment in each time interval. Also used to measure the percent change in price for a percent change in yield.
The change in value of a bond (expressed in years) caused by a change in the prevailing interest rates. For example: For example: if a bond has a duration of 10 years and the interest rate increases by 1%, the price of the bond will decrease by 10 percent.
Modified duration is a measure of price volatility and is the weighted average term to maturity of the security's cash flows (i.e., interest and principal), with weights proportional to the present value of the cash flows. Bonds with a longer duration are more price sensitive to interest rate changes than bonds with short durations.
A measure of the sensitivity of the price of a bond to changes in the yield curve. Dollar duration measures the change in price.
Provisions for an approximation of the percentage change in the price of a security relative to change in interest rates. It provides a measure of the price volatility of the security; the greater the duration, the greater the price volatility relative to a change in interest rates. Duration is the weighted average term-to-maturity of the security's cash flows when the weights are the present values of each cash flow as a percentage of the present value of all cash flows of the security.
A measurement of the change in the value of an instrument in response to a change in interest rates. It is the primary basis for comparing the effect of interest rate changes on prices of fixed-income instruments.
A gauge of the impact of fixed interest investments on changing interest rates. Duration measures not only the redemption date, but also the dates and amounts of interest paid.
A measure of average maturity that incorporates a bond's yield, coupon, final maturity and call features into one measurement. Duration measures the sensitivity of a bond's, or portfolio's, price to changes in interest rates.
Duration of a bond is a maturity measure that takes account not only of the redemption date but of the dates on which interest is paid and the amount of this interest. Duration is an important measure of the interest rate exposure of a fixed interes portfolio.
Duration estimates how much a bond's price fluctuates with changes in comparable interest rates. If rates rise 1.00%, for example, a fund with a 5-year duration is likely to lose about 5.00% of its value. Other factors also can influence a bond fund's performance and share price. A bond fund's actual performance may differ. Earnings Growth Rate: The rate of increase/decrease in earnings over a period. For example, an annualized three-year earnings growth rate of 6% means that the earnings have increased at an average annual rate of 6% over the three-year period.