Macaulay Duration

Categories: Bonds, Metrics

The Macaulay duration can be interpreted a couple different ways. The most simple way, in our opinion, is that the Macaulay duration is the weighted average number of years (ergo the “duration”) that a bond-holder must keep holding on until the present value of the bond’s cash flow catches up to the price you bought the bond for up front.

Because a bond’s payout is determined by its price, maturity, and coupon rate, these are some factors that go into calculating the Macaulay duration. Brokers, investors, and portfolio managers who are actively minimizing risk for the present and the future in what’s called an immunization strategy (though it’s not necessarily fully protective...but it tries).

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