Duration measures a fixed-income’s sensitivity to changes in interest rates.Duration is a complicated calculation, but it’s standard information that’s provided with bonds and bond mutual funds. It essentially reveals how long it will take for the interest payments generated by a fixed-income investment to repay the invested principal. It’s expressed as a number of years. Investors need to remember that investing in bonds poses credit risk and interest rate risk. Duration indicates how much risk a bond investor faces from changes in interest rates. A bond with a higher duration will have a lower coupon rate, along with a longer term to maturity and more volatility. This makes it more vulnerable to interest rate risk. If Susan owns a bond with a duration of five, it will take five years for Susan to receive her principal back. If interest rates rise by 1%, the bond will decrease in value by 5%. A 1% decrease in interest rates means Susan’s bond will increase in value by 5%. If Susan and John own bonds with similar maturities, the bond paying the highest coupon will have the shortest duration. If their bonds have the same coupon rate, the bond that matures first will have the shortest duration. Finally, if John’s bond has a duration of 10 and interest rates change, its price will experience a bigger change than Susan’s because of its higher duration.