Bond Duration

Bond prices are sensitive to interest rate changes, and bond duration is a measure of just how sensitive. For instance, in Exhibit 1.1 (shown in my last article), an increase in interest rates for the simple bond from 3 percent to 4 percent caused the bond’s price to fall by 8.1 percent. This bond has a duration of 8.1, meaning that a 1 percent rise in interest rates leads to an 8.1 percent drop…

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