Bond duration

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Querist : Anonymous (Querist)

18 August 2014 sir what is meant by duration of a bond and how is it different from maturity of a bond.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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03 December 2014 Duration is an approximate measure of a bond's price sensitivity to changes in interest rates.
If a bond has a duration of 6 years, for example, its price will rise about 6% if its yield drops by a percentage point (100 basis points), and its price will fall by about 6% if its yield rises by that amount.

he term "maturity" when used to refer to bonds generally means one of two related things:

1. The actual date the bond is "cashed out" by the issuer and an investor receives the face value of that bond .For example, a bond might have a "maturity of June 1, 2025."

or,

2. The length of time until a fixed income investment returns its original investment at the date mentioned above. For example, someone might say that a bond has "a 5-year maturity."

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