Course 101: Bond Market Interest Rates
Duration, Interest, and Maturity
In this course
1 Introduction
2 Interest Rates and Bond Pricing
3 Bond Yields and Market Pricing
4 Bond Maturities and Interest Rates
5 Duration, Interest, and Maturity
6 Watch Bond Interest Rates Carefully

Investors use duration to predict bond price changes. Duration is a measure of a bond's interest rate risk. It is the weighted average of the time periods until a bond or bond portfolio's interest and principal payments are received, and it's expressed in years. As the value of a bond changes, so does its duration.

When interest rates change, the price of a bond will change by a corresponding amount related to its duration. For example, if a bond's duration is 5 years and interest rates fall 1%, you can expect the bond's prices to rise by approximately 5%. Therefore, if you expect interest rates to rise, you want to invest in bonds with lower durations. Low duration means less volatility or price risk.

In general, the shorter a bond's maturity, the less its duration. Bonds with higher yields also have lower durations. A zero-coupon bond's duration is the time to its maturity.

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