Macaulay Duration - This measures the weighted average time until all cash flows (interest payments and principal repayment) are received. It accounts for the time value of money by weighting each …

Duration is defined as the average time it takes to receive all the cash flows of a bond, weighted by the present value of each of the cash flows. Essentially, it is the payment-weighted point in time at which …

So for a portfolio or security with fixed cash flows, its duration is roughly the average maturity of its cash flows—this gives an intuitive way to estimate interest rate sensitivity.

An understanding of how duration works and how it can be applied will greatly expand a bond investor’s ability to maximize return and minimize risk.

Definition: The duration of a bond is a linear approximation of the percent change in its price given a 100 basis point change in interest rates. (100 basis points = 1% = 0.01) For example, a bond with a …

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Today’s topic: duration models First question is: what’s a duration model? Second question: why do we care? Third question: what are ways to estimate them? What are estimands that are identified in …