Context: finance, interest rate

For a fixed interest security such as bonds and debentures, the *(Macauley) duration* of such a security is the present-value-weighted mean time that a cash flow will be received. It is calculated using the following formula:

*D* = (Σ^{n}_{t = 0} *tC*_{t}v^{t}) / (Σ^{n}_{t = 0} *C*_{t}v^{t}),

where

*n* is the final period in which a cash flow is received from the security,

*C*_{t} is the cash flow at the time

*t*, and

*v*^{t} (in

actuarial notation) is the appropriate discount factor for the time period

*t*.

Duration is used to measure interest rate risk for a particular security, i.e. the risk of a capital loss if interest rates move adversely. Securities that are sensitive to interest rate movements (and hence more risky) have a greater duration than securities that are less sensitive to interest rates.

Duration, along with its cousins modified duration and convexity, are the guiding principles in immunization of securities.