Macaulay Duration


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


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BREAKING DOWN '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.

  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Immunization

    A strategy that matches the durations of assets and liabilities ...
  3. Effective Duration

    A duration calculation for bonds with embedded options. Effective ...
  4. Modified Duration

    A formula that expresses the measurable change in the value of ...
  5. Key Rate Duration

    Holding all other maturities constant, this measures the sensitivity ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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  1. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  2. For what financial instruments is a modified duration relevant?

    The modified duration is a formula used to calculate the percent change in the price of a financial instrument when there ... Read Full Answer >>
  3. Which is a better metric, modified duration or Macaulay duration?

    The modified duration is likely the more useful metric since it measures the price sensitivity of a bond to a change in interest ... Read Full Answer >>
  4. How can I use a bond's duration to predict its return?

    A bond's duration can determine its future cash flows. It measures the bond's profitability if it is held to maturity. Duration ... Read Full Answer >>
  5. What is the average profit margin of a company in the chemicals sector?

    Macaulay duration and modified duration are used in fixed income markets to determine a bond's duration. The Macaulay duration ... Read Full Answer >>
  6. What level of return on equity is average for companies in the chemicals sector?

    The modified duration is an adjusted version of the Macaulay duration and takes into account how interest rate fluctuations ... Read Full Answer >>
  7. What is the risk return tradeoff for bonds?

    Macaulay duration and modified duration are mainly used to calculate the durations of bonds. The Macaulay duration calculates ... Read Full Answer >>
  8. What are the different types of college savings accounts?

    The resulting Macaulay duration of a zero-coupon bond is equal to the time to maturity of the bond. A zero-coupon bond is ... Read Full Answer >>
  9. What is the risk return tradeoff for stocks?

    The Macaulay duration measures the weighed average number of years that a bond must be held until the present value of its ... Read Full Answer >>
  10. What is the formula for calculating the capital to risk weight assets ratio for a ...

    Use the Macaulay duration to calculate the duration of a zero-coupon bond. The resulting Macaulay duration of a zero-coupon ... Read Full Answer >>
  11. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
  12. Do long-term bonds have a greater interest rate risk than short-term 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 >>
  13. Why do companies issue 100-year bonds?

    Although it is rare, companies do issue bonds that exceed an average person's life expectancy. For example, multi-billion ... Read Full Answer >>

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