Macaulay Duration of a 10% Coupon 4-Year Bond in an 8% Yield Environmental (2 graphs)
The present value weighted time to maturity of the cash flows of a fixed payment instrument or of the implicit cash flows of a derivative based on such an instrument. Originally developed as a market risk measurement for bonds (the greater the duration or 'average' maturity, the greater the risk), duration has proven useful in analyzing equity securities and fixed income options and futures. The diagram illustrates Macaulay duration as a balancing of present values of cash flows. See also Modified Duration, Effective Duration, Option- Adjusted Duration, Partial Duration.
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