Published Article Details

Smart things to Know about duration of a bond

Posted by: Labdhi Mehta on May 22, 2017, 06.30 AM IST

1. Duration is a measure of the interest rate sensitivity of a bond.

2. Bonds have two main risks associated with them: credit risk and interest rate risk. Duration addresses the interest rate risk of a bond.

3. Duration is a single measure of cash flow, tenor and yield of a bond. The periodic coupon payments shorten the average tenor of the bond.

4 . Duration is measured in years. A high duration indicates that investors would need to wait for a long period to receive the coupon payments and principal invested.

5 . Duration is also an alternate measure of the maturity of a bond.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.) This article appeared in Economic Times dated May 22, 2017, 06.30 AM IST

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