Business Case Studies & Business Publications

Duration and Convexity

Conroy, Robert M.

Technical Note

Duration and Convexity

Conroy, Robert M.

F-1238 | Published August 19, 1998 | 9 pages Technical Note

Collection: Darden School of Business

Add To Cart Buy Now

Product Details

The price of a bond is a function of the promised payments and the market-required rate of return. Because the promised payments are fixed, bond prices change in response to changes in the market-required rate of return. For investors who hold bonds, the issue of how sensitive a bond's price is to changes in the required rate of return is important. There are four measures of bond-price sensitivity that are commonly used: Simple Maturity, Macaulay Duration (effective maturity), Modified Duration, and Convexity. Each of these measures provides a more exact description of how a bond price changes relative to changes in the required rate of return.