9.30 Another Review of the Concept of Duration

In all, we covered several definitions or views of duration:

1. Duration is the weighted average “Life” of the present value of the bond’s cash flows.

2. Duration is the point at which an imaginary present value-weighted fulcrum will be in balance.

3. Duration represents the holding period in which reinvestment and price risks will exactly offset one another.

4. Duration is the point of tangency or slope of a straight line drawn along the price-yield curve.

5. (Modified) Duration can be used to provide a linear estimate of the dollar price change, for a given yield change.

6. Duration is a measure of price sensitivity or volatility.