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2.3Investment Foundations · Mission 3

Duration: Measuring Interest-Rate Sensitivity

Duration turns a complete bond payment timeline into a measure of when its present value arrives—and a way to compare rate exposure.

Your mission

Locate the cash-flow center, rebuild the 8.36-year source example, test coupon and maturity, and rank four bonds by duration.

18–22 minutesFive guided missionsOne duration profile

Guided bond lab

0 of 5 missions complete

OPS Guide

Duration begins with timing. Locate when the bond delivers most of the present value of its payments.

Run the cash-flow center-of-gravity model.

Mission 1 of 5 · Locate

Direct definition

Macaulay duration is the weighted-average time until a bond’s cash flows arrive. Each payment receives a weight based on its present value.

Scan the payment timeline. The small coupons contribute weight each year, while the large face-value repayment pulls the center toward maturity.

Y10