# Duration

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## Definition of 'Duration'

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Duration is a measure of the time until a bond's cash flows are received. It is calculated by taking the weighted average of the time until each cash flow is received, with the weights being the present value of each cash flow.

Duration is important because it can be used to estimate how a bond's price will change in response to changes in interest rates. A bond with a longer duration will be more sensitive to interest rate changes than a bond with a shorter duration.

For example, if interest rates rise, the price of a bond with a long duration will fall more than the price of a bond with a short duration. This is because the longer duration bond will have more cash flows that are affected by the higher interest rate.

Duration is also used to calculate the yield to maturity of a bond. The yield to maturity is the interest rate that makes the present value of all of the bond's cash flows equal to the bond's price.

The duration of a bond can be calculated using a variety of methods. The most common method is the Macaulay duration. The Macaulay duration is calculated by taking the weighted average of the time until each cash flow is received, with the weights being the present value of each cash flow.

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Duration is a key concept in fixed income investing. It is a measure of the sensitivity of a bond's price to changes in interest rates. Duration is calculated by taking the weighted average of the time until each cash flow is received, with the weights being the present value of each cash flow.

The longer the duration of a bond, the more sensitive it is to changes in interest rates. This is because a longer duration bond has more cash flows that are affected by changes in interest rates. For example, a bond with a 10-year duration will have more cash flows that are affected by a 1% increase in interest rates than a bond with a 5-year duration.

Duration is important because it can be used to estimate how a bond's price will change in response to changes in interest rates. This information can be used to make investment decisions. For example, an investor who is concerned about rising interest rates may want to invest in bonds with shorter durations.

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Duration is a measure of the sensitivity of a bond's price to changes in interest rates. It is calculated by taking the weighted average of the time until each cash flow is received, with the weights being the present value of each cash flow.

Duration is important because it can be used to estimate how a bond's price will change in response to changes in interest rates. This information can be used to make investment decisions. For example, an investor who is concerned about rising interest rates may want to invest in bonds with shorter durations.

Duration is also used to calculate the yield to maturity of a bond. The yield to maturity is the interest rate that makes the present value of all of the bond's cash flows equal to the bond's price.

The duration of a bond can be calculated using a variety of methods. The most common method is the Macaulay duration. The Macaulay duration is calculated by taking the weighted average of the time until each cash flow is received, with the weights being the present value of each cash flow.

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