duration of bond definition
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Low Duration Bonds vs. Intermediate Bonds Bond duration is a measure of a bond's interest rate sensitivity. Bond duration is a measure of a bond's risk profile and is critical to understand for any investor with exposure to government or corporate bonds. Low-and intermediate-duration bonds represent two distinct risk classes for the bond investor. As such, their merits and shortcomings must be carefully evaluated.
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- duration - the period of time during which something continues. continuance. period, period of time, time period - an amount of time; a time period of 30 years; hastened the period of time of his recovery; Picasso's blue period.
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Intermediate Term Bond Fund An intermediate-term bond is one that matures not in the short-term or in the long-term. It matures in the medium term. Just what the intermediate term is, that's not as easy to define. Some say three to 10 years. Some say the intermediate term can last for 15 years. The length of time to maturity really does matter. Those who know bonds understand that the maturity date is the point at which the bond pays back the principal or face value of the bond.
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Waiver of Bond Law and Legal Definition Waiver of Bond Law and Legal Definition. A bond is an obligation, expressed in writing, to pay a fixed and liquidated sum on the happening or nonoccurence of a specified condition or event.
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- Here is my paraphrase of their answer (combined with their academic reference) to the question: what is duration of a callable zero-coupon bond? Answer: it varies with yield and option strike price, Lower bond [as strike price --> 0 and/or yield decreases] of time to call date; e.g., in the question above, lower bound would be 6.0 years, if the strike were more realistic! Upper bond [as strike price --> inf. and/or yield increases; i.e., as option value tends toward zero] of duration of underlying non-callable bond; e.g., in the above, 10.0 years. Sanjay Nawalkha page 31: We have demonstrated that many statements about duration and convexity do not hold in the simple case of a zero-coupon bond.
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- Calculate Bond Duration on Coupon Date. Duration is a measure of the length of time it will take the bond's cash flows to repay the investor the price he or she paid for the bond. The smaller the duration of a bond, the faster an investor will get back his or her investment through coupon payments and the final par-value payment.
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Duration and Convexity 1. Example—Calculating Modified Duration using Microsoft Excel. Calculate the duration and modified duration of a 10-year bond paying a coupon rate of 6%, a yield to maturity of 8%, and with a settlement date of 1/1/2008 and maturity date of 12/31/2017. Duration = DURATION(1/1/2008,12/31/2017,0.06,0.08,2) = 7.45.
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- Glossary. 1  Duration: A measure of the sensitivity of the price of a bond to a change in interest rates. 2  Maturity: The number of years left until a bond repays its principal to investors. 3  Yield: The income return or interest received from a bond.  Coupon: The interest payments a bondholder receives until the bond matures.
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- The following scenarios of comparing two bonds should help clarify how these three traits affect a bond’s duration: 1  If the coupon and yield are the same, duration increases with time left to maturity. 2  If the maturity and yield are the same, duration increases with a lower coupon.
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What is 'Term To Maturity' Term to maturity refers to the remaining life of a debt instrument. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value. Between the issue date and maturity date, the bond issuer will make coupon payments to the bond holder. BREAKING DOWN 'Term To Maturity' Bonds can be grouped into three broad categories depending on their terms to maturity: short term bonds of 1 to 5 years, intermediate term bonds of 5 to 12 years, and long term bonds of 12 to 30 years.
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CERTIFICATE bond-a certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal. bond certificate.
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duration Duration is defined as the length of time that something lasts. When a film lasts for two hours, this is an example of a time when the film has a two hour duration. continuance in time.
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What is bond duration and why does it matter? Duration is measured in years. Generally, the higher the duration of a bond or a bond fund (meaning the longer you need to wait for the payment of coupons and return of principal), the more its price will drop as interest rates rise.
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- Bonds—Duration—Release of surety—Cancellation by surety. (1) Every bond filed with and approved by the department shall without the necessity of periodic renewal remain in force and effect until such time as the warehouse operator or grain dealer license of each principal on the bond is revoked or otherwise canceled.
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Effective Duration Vs. Average Maturity If you have three bonds with maturities of 12, 14 and 20 years and their values make up 25, 35 and 40 percent of the portfolio respectively, the average maturity of the bond portfolio is 12 x 25 percent + 14 x 35 percent + 20 x 40 percent, or 15.9 years. The same formula applies to effective duration. So if the effective durations were six, nine and 11, the effective duration of the portfolio equals 6 x 25 percent +9 x 35 percent +11 times 40 percent, or 9.05. In simpler terms, on average, the bonds in the portfolio will mature in 15.9 years. If the yields were to increase by 1 percent on each on these three bonds, the portfolio's value would decline by 9.05 percent. 1  BondView:Duration.  BondEdge: Effective Duration -- Subtleties and Considerations.
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duration Duration is stated in years. For example, a 5 year duration means the bond will decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%.Duration is a weighted measure of the length of time the bond will pay out.Unlike maturity, duration takes into account interest payments that occur throughout the course of holding the bond. Basically, duration is a weighted average of the maturity of all the income streams from a bond or portfolio of bonds.uration is a weighted measure of the length of time the bond will pay out. Unlike maturity, duration takes into account interest payments that occur throughout the course of holding the bond. Basically, duration is a weighted average of the maturity of all the income streams from a bond or portfolio of bonds.
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DEFINITION of 'Empirical Duration' Regression analysis is the statistical process used to estimate empirical duration. Duration is the percentage change in a bond's price with a 100-basis-point change in yield.egression analysis is the statistical process used to estimate empirical duration. Duration is the percentage change in a bond's price with a 100-basis-point change in yield.
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- intermediate bond. Definition. A bond with a maturity somewhere between the range of a short-term bond (less than 2 years) and a long-term bond (more than 15 years). A typical maturity for an intermediate term U.S. Treasury security is 10 years. Print Cite / Link.
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- http%3a%2f%2fwww.morningstar.com%2fInvGlossary%2fGlossary.aspx%3fterm%3daverage_duration. Average Duration. Duration is a time measure of a bond's interest-rate sensitivity, based on the weighted average of the time periods over which a bond's cash flows accrue to the bondholder. Time periods are weighted by multiplying by the present value of its cash flow divided by the bond's price. A bond's duration will almost always be shorter than its maturity, with the exception of zero-coupon bonds, for which maturity and duration are equal.
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duration Basically, duration is a weighted average of the maturity of all the income streams from a bond or portfolio of bonds. So, for a two-year bond with 4 coupon payments every six months of $50 and a $1000 face value, duration (in years) is 0.5(50/1200) + 1(50/1200)+ 1.5(50/1200)+ 2(50/1200) + 2(1000/1200) = 1.875 years.
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"The Difference Between ""Maturity"" and ""Duration""" It's this last measure that Morningstar lists on its bond-fund pages, and it is provided by the fund companies themselves. Average effective duration is an asset-weighted measure of the effective duration of securities held in a fund and is particularly useful as a guide to how interest-rate movements will affect the fund's holdings. Simply put, bonds with longer durations are more sensitive to interest-rate changes than those with shorter durations.
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Short-Term Vs. Intermediate-Term Bond Funds Short Term Bond Vs. Bond funds are mutual funds that hold a variety of debt instruments issued by governments, corporations or investment firms. Bond terms vary in length from a few months to 30 years. Short-term bond funds largely contain bonds with a duration of 24 months or less. Intermediate bonds funds contain bonds with an average duration of between two and 10 years.
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What's the difference between maturity and duration? Macaulay duration, which is named after Frederick Macaulay, who developed it in 1938, provides a weighted average of the time to each interest (coupon) and principal payment of a bond. Modified duration is a slightly more involved calculation that takes into account the effects of interest-rate movements.
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What Is a Certificate of Debt? A certificate of debt, also known as a bond, is a written promise issued by a government or company in order to raise money. It states the duration of the loan, the amount of principal and the fixed interest rate. Debt certificates are considered a safer investment than stocks. Types Whether they are issued by companies, or by local or national governments, all bonds are classified by the length of time before maturity. Those maturing in less than a year are known as bills, those maturing in one to 10 years are notes and those with longer maturity are bonds. Advantages
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Definition of 'duration' duration (djʊreɪʃən , US dʊr- ) 1. uncountable noun. The duration of an event or state is the time during which it happens or exists. He was given the task of protecting her for the duration of the trial. Courses are of two years' duration. Synonyms: length, time, period, term More Synonyms of duration.
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- Like market risk for stocks, interest rate risk is a universal. risk for bond investors, and the principal measure of interest rate risk is. modiﬁed duration (hereafter referred to simply as duration). Because the topic of duration and a related concept—convexity—can. be very complex, we offer this brief paper as a fundamental, rather than. a comprehensive, overview of the topic.