Duration
Private Equity glossary · Private Equity Fundamentals
Definition
Weighted average time to receipt of bond cash flows; measures interest-rate sensitivity.
Duration in plain English
Imagine you're owed money from a bond in a bunch of future payments — some soon, some years away. Duration is basically the average waiting time until you get paid back, but it weights bigger and later payments more heavily. Why care? It tells you how twitchy a bond's price is when interest rates move: a bond with a duration of 5 will roughly lose about 5% of its value if rates rise by 1 percentage point (and gain about 5% if rates fall). So a long duration means big price swings, and a short duration means the bond barely flinches.
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