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 ... 
Sensitivity
The magnitude of a financial instrument's reaction to changes ... 
Macaulay Duration
The weighted average term to maturity of the cash flows from ... 
Negative Convexity
When the shape of a bond's yield curve is concave. A bond's convexity ... 
Modified Duration
A formula that expresses the measurable change in the value of ... 
Key Rate Duration
Holding all other maturities constant, this measures the sensitivity ...

Do longterm bonds have a greater interest rate risk than shortterm bonds?
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What is the relationship between the hurdle rate (MARR) and the Internal Rate of ...
In capital budgeting, projects are often evaluated by comparing the internal rate of return, or IRR, on a project to the ... Read Full Answer >> 
What is the rationale behind the effective interest rate?
There are several different effective interest rates. In accounting, the effective interest method examines the relationship ... Read Full Answer >> 
What is the theory of asymmetric information in economics?
The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >> 
How does market risk differ from specific risk?
Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >> 
How is perpetuity used in the Dividend Discount Model?
The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... 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. 
Economics
What Is Supply?
Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics. 
Economics
Modified Internal Rate of Return (MIRR)
Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation. 
Investing Basics
What's the Primary Market?
The primary markets are where investors can get first crack at a new security issuance. 
Investing Basics
Treasury InflationProtected Securities (TIPS)
Treasury inflationprotected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index. 
Investing Basics
What is the Coupon?
In the financial world, “coupon” represents the interest rate on a bond. 
Investing Basics
Explaining the Coupon Rate
Coupon rate is the stated interest rate on a fixed income security. 
Retirement
Facing Retirement? Look Beyond 100% Bonds
Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation. 
Mutual Funds & ETFs
Is the PowerShares (PFEM) ETF a Good Bet Now?
What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.