Bond Duration
From Financial Literacy Wiki
Bond Duration is a measure of of how long, in years, it takes for the price of a bond to be repaid by the present value of the bond's cash flows. It is an important measure for investors to consider, as bonds with higher durations (ie. takes longer time to recoup money invested) carry more risk and have higher price volatility than bonds with lower durations.
There are generally two factors that can affect duration and they are:
- Time to Maturity
- Coupon Rate/Actual Yields
There are four types of Duration and they are
- Macaulay duration
- Modified duration
- Effective duration
- Key-rate duration
