GLOSSARY · INVESTING
Duration (bonds)
A measure, in years, of how sensitive a bond or bond fund's price is to changes in interest rates. As a rule of thumb, the price moves by roughly the duration in percent for each one-point change in rates, in the opposite direction. Longer maturities and lower coupons mean higher duration.
Also called: duration, modified duration, interest-rate sensitivity
FORMULA
Price change (%) ~ -duration x change in yield (percentage points)
LEARN IT PROPERLY
CHAPTER · INVESTMENT FOUNDATIONS · FOUNDATIONSHow Bonds WorkCHAPTER · INVESTMENT FOUNDATIONS · FOUNDATIONSBuilding the Bond Side of a PortfolioRELATED TERMS
SOURCES
- Interest rate risk: When interest rates go up, prices of fixed-rate bonds fall. U.S. Securities and Exchange Commission, Investor Bulletin.