DEFINITION of 'Duration'
A measure of the sensitivity of the price (the value of principal) of a fixedincome investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
INVESTOPEDIA EXPLAINS 'Duration'
The duration number is a complicated calculation involving present value, yield, coupon, final maturity and call features. Fortunately for investors, this indicator is a standard data point provided in the presentation of comprehensive bond and bond mutual fund information. The bigger the duration number, the greater the interestrate risk or reward for bond prices.
It is a common misconception among nonprofessional investors that bonds and bond funds are risk free. They are not. Investors need to be aware of two main risks that can affect a bond's investment value: credit risk (default) and interest rate risk (rate fluctuations). The duration indicator addresses the latter issue.

Basis Point (BPS)
A unit that is equal to 1/100th of 1%, and is used to denote ... 
Effective Duration
A duration calculation for bonds with embedded options. Effective ... 
Macaulay Duration
The weighted average term to maturity of the cash flows from ... 
Modified Duration
A formula that expresses the measurable change in the value of ... 
ZeroCoupon Bond
A debt security that doesn't pay interest (a coupon) but is traded ... 
Key Rate Duration
Holding all other maturities constant, this measures the sensitivity ...

Do longterm bonds have a greater interest rate risk than shortterm bonds?
The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ... Read Full Answer >> 
How do I use the principles of convexity to compare bonds?
Convexity, along with another principle known as duration, is an important consideration when assessing bond risk. All else ... Read Full Answer >> 
What can cause a security to go from investment grade to "junk" grade?
The most common reason for a debt security downgrade from investment grade to junk grade is a negative change in the bond ... Read Full Answer >> 
What is affected by the interest rate risk?
Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly ... Read Full Answer >> 
How can I calculate convexity in Excel?
In the bond market, convexity refers to the relationship between price and yield; when graphed, this relationship in nonlinear ... Read Full Answer >> 
What is the correlation between a coupon rate and the convexity of a given bond?
Generally speaking, convexity decreases as yields increase (geometrically, the yield curve tends to flatten at higher yields). ... Read Full Answer >>

Bonds & Fixed Income
Use Duration And Convexity To Measure Bond Risk
Find out how this measure can help fixedincome investors manage their portfolios. 
Options & Futures
Immunization Inoculates Against Interest Rate Risk
Bigmoney investors can hedge against bond portfolio losses caused by rate fluctuations. 
Investing Basics
Understanding OpenEnd Funds
An openend fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy. 
Investing Basics
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Investing Basics
Understanding Financial Instruments
Financial instrument is a general term used to describe a monetary asset. 
Economics
What is Deadweight Loss?
Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. 
Economics
How to Do a CostBenefit Analysis
The benefits of a given situation or businessrelated action are summed and then the costs associated with taking that action are subtracted. 
Professionals
Why You Should Avoid Fixating on Bond Duration
Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration. 
Investing
The Case For Stocks Today
Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.