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Duration Risk: Do You Know Your Numbers?

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  • Ann Galligan Kelley

Abstract

Most investors know that bond prices move inversely with interest rate fluctuations. These same investors, however, may not fully understand how to assess the interest rate risk of different fixed income investments. This is particularly timely given the improving U.S. economy and Federal Reserve’s expectation of increasing interest rates in the near future. The simplest measure of interest rate risk for the average investor is something called duration. The Financial Industry Regulatory Authority (FINRA) stated that the one number a bond investor should know is duration. This article will explain what duration is, how to use this measure to evaluate risks, examples of how changes in interest rates will impact bonds or bond funds with different durations, and where investors can find this information

Suggested Citation

  • Ann Galligan Kelley, 2017. "Duration Risk: Do You Know Your Numbers?," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 8(1), pages 57-66.
    • Handle: RePEc:ibf:rbfstu:v:8:y:2017:i:1:p:57-66
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    More about this item

    Keywords

    Duration; Interest Rate Risks; Bonds; Investments;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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