Macaulay Duration is a measure of the weighted average time until a bond's cash flow payments are received, helping investors assess interest rate risk and evaluate bond price volatility. It is particularly useful for determining a bond portfolio's immunization strategy by aligning the duration with the investment horizon to minimize interest rate exposure.

Macaulay Duration

weighted average time

bond's cash flow payments

Interest rate risk refers to the potential for investment losses due to fluctuations in interest rates, which can affect the value of fixed-income securities like bonds. It is a critical consideration for investors and financial institutions as changes in interest rates can impact borrowing costs, investment returns, and overall economic conditions.

interest rate risk

bond price volatility

bond portfolio's immunization strategy

Investment horizon refers to the total length of time that an investor expects to hold a security or portfolio before liquidating it. It is a critical factor in determining the investment strategy, risk tolerance, and asset allocation suitable for achieving financial goals.

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