Bonds Duration | Definition | What is Bonds Duration?

Bonds Duration

Bonds Duration | Definition

(1) For a bond, a maturity measure that takes into account not only of the redemption date but also the dates on which interest is paid and the amount of this interest. In this context, duration is the average time a bondholder must wait to be paid, reflecting the fact that payment is partly semiannual interest and partly redemption proceeds at maturity.

For a bond with an embedded option, the effective duration is the approximate maturity measure that reflects the expected change in cash flow caused by the option.

(2) A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

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