Duration

Glossary

Banking

Duration

Duration is a measure of how long, on average, the cash flows on an instrument are fixed for. Duration is quoted in years. The longer the cash flows are fixed for, the more the value changes when interest rates change. Duration is therefore a measure of interest-rate risk for bond investors. It measures how bond prices will change for changes in underlying interest rates. The higher the duration of a bond, the more its price will fall when interest rates rise.

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