Duration

Bond duration is an algebraic formula used to estimate a bond/bond fund’s sensitivity to changes in interest rates. For example, a bond with a duration of “5” would experience a ~5% price increase/decrease for every 1% decrease/increase change in interest rates. The formula used to calculate duration is simply the weighted-average term to maturity of the cash flows from a bond, where the weights are the present value of the cash flow divided by the price.