Average Duration
The sensitivity of a portfolio of bonds such as a bond mutual fund to changes in interest rates can also be important. The average duration of the bonds in the portfolio is often reported. The duration of a portfolio equals the weighted average maturity of all of the cash flows in the portfolio. If each bond has the same yield to maturity, this equals the weighted average of the portfolio's bond's durations, with weights proportional to the bond prices. Otherwise the weighted average of the bond's durations is just a good approximation, but it can still be used to infer how the value of the portfolio would change in response to changes in interest rates.
Read more about this topic: Bond Duration
Famous quotes containing the words average and/or duration:
“Whether or not his newspaper and a set of senses reduced to five are the main sources of the so-called real life of the so- called average man, one thing is fortunately certain: namely, that the average man himself is but a piece of fiction, a tissue of statistics.”
—Vladimir Nabokov (18991977)
“What matters it that man should have a little more knowledge of the universe? If he has it, he gets little higher. Is he not always infinitely removed from the end, and is not the duration of our life equally removed from eternity, even if it lasts ten years longer?”
—Blaise Pascal (16231662)