Macaulay duration

The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price of the bond.

D = [(1 x (C/1+y)) + (2 x (C/1+y^2)) + (3 x ((C + FV)/1+y^3))] / [(C/1+y) + (C/1+y^2) + (C + FV/1+y^3)]

Similar financial terms

Negative duration
A situation in which the price of the MBS moves in the same direction as interest rates.

Mortgage duration
A modification of standard duration to account for the impact on duration of MBSs of changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that reflects the impact of changes in prepayment speed or price.

Modified duration
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.

Duration
A measure of a bond's price sensitivity to changes in interest rates.

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Power Grid™

A matrix which enables an analyst, investor, portfolio or risk manager a quick and incisive look at the option characteristics of a group of countries or corporations. In the case of countries, such as the G-7, the equity, credit and currency markets are comparable in terms of standardized statistics such as volatility. This tool helps to identify imbalances and potential arbitrage situations.

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