# Definition of __Macaulay duration__

## 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.

## Macaulay duration

A widely used measure of price sensitivity to yield

changes developed by Frederick **macaulay** in 1938. It is measured in years and

is a weighted average-time-to-maturity of an instrument. The **macaulay**

**duration** of an income stream, such as a coupon bond, measures how long, on

average, the owner waits before receiving a payment. It is the weighted

average of the times payments are made, with the weights at time T equal to

the present value of the money received at time T.

# Related Terms:

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.

The expected life of a fixed-income security considering its coupon

yield, interest payments, maturity, and call features. As market interest rates

rise, the **duration** of a financial instrument decreases. See **macaulay duration**.

The **macaulay duration** discounted by the per-period

interest rate; i.e., divided by (1+rate/frequency).

The product of modified **duration** and the initial price.

A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

The **duration** calculated using the approximate **duration** formula for a bond with an

embedded option, reflecting the expected change in the cash flow caused by the option. Measures the

responsiveness of a bond's price taking into account the expected cash flows will change as interest rates

change due to the embedded option.

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.

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

The weighted average of the time until maturity of each of the

expected cash flows of a debt security

The time it takes for a policy or annuity to reach maturity.

A yield curve for zero-coupon bonds;

zero rates versus maturity dates. Since the maturity and **duration** (**macaulay**

**duration**) are identical for zeros, the zero curve is a pure depiction of supply/

demand conditions for loanable funds across a continuum of **duration**s and

maturities. Also known as spot curve or spot yield curve.

**Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.**