Search Investopedia

Macaulay Duration

Filed Under » , ,
Dictionary Says

Definition of 'Macaulay Duration'

The weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price, and is a measure of bond price volatility with respect to interest rates.

Macaulay duration can be calculated by:

Macaulay Duration
Investopedia Says

Investopedia explains 'Macaulay Duration'

The metric is named after its creator, Frederick Macaulay. Macaulay duration is frequently used by portfolio managers who use an immunization strategy. Macaulay duration is also used to measure how sensitive a bond or a bond portfolio's price is to changes in interest rates.

Related Definitions

  •

    Bond

    A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used ...
    Read More »

  • Effective Duration

    A duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change.
    Read More »

  • Immunization

    A strategy that matches the durations of assets and liabilities thereby minimizing the impact of interest rates on the net worth. Also known as "multiperiod immunization".
    Read More »

    • Key Rate Duration

      Holding all other maturities constant, this measures the sensitivity of a security or the value of a portfolio to a 1% change in yield for a given maturity.The calculation is as ...
      Read More »

    • Modified Duration

      A formula that expresses the measurable change in the value of a security in response to a change in interest rates. Calculated as:Where:n = number of coupon periods per yearYTM = the ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions