4
Fixed IncomeModule 4 of 5

Interest Rate Risk and Duration

5

Concepts

5

Formulas

1

Decisions

4

Quiz Questions

Explore the Learning Dashboard

Key Concepts

5 concepts covered in this module.

Duration

Measure of bond price sensitivity to yield changes. Higher duration = more price volatility. Approximate % price change for 1% yield change.

Macaulay Duration

Weighted average time to receive cash flows. In years. Duration of zero-coupon = maturity.

Premium +3 more

Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.

Formulas

5 essential formulas for this module.

Modified Duration

ModDur = MacDur / (1 + y/m)

Where: y = YTM, m = compounding periods per year

Price Change (Duration)

ΔP/P ≈ -ModDur × Δy

Where: First-order approximation

Premium +3 more

Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.

Decision Frameworks

1 decision frameworks to guide your analysis.

How to manage interest rate risk?

  • Match duration of assets and liabilities (immunization)
  • Extend duration if expecting rates to fall
  • Shorten duration if expecting rates to rise

Mind Map

Visual overview of how concepts connect in this module.

Premium

This module is part of Premium

Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.

  • 10 subjects · 59 modules
  • 725+ flashcards
Free Study Dashboard

Don't just read Interest Rate Risk and Duration — practice it

Everything on this page becomes interactive on the study dashboard, free.

  • 11 interactive flashcards built from this page
  • 4 exam-style quiz questions with instant scoring
  • Progress tracking across all 5 Fixed Income modules
Open Study Dashboard

No signup required. Create an account anytime to save progress.

Try it right here

Flashcard

Duration

Tap to reveal the answer

Answer
Measure of bond price sensitivity to yield changes. Higher duration = more price volatility. Approximate % price change for 1% yield change.
Sample 1 of 5
Study all 11 flashcards on the dashboard

Previous Module

Fixed-Income Bond Valuation

Next Module

Credit Risk and Credit Analysis