Fixed Income

Effective Duration

Definition

What is Effective Duration?

A duration measure that estimates price sensitivity when cash flows may change because of embedded options.

Example in practice

Analysts use effective duration for mortgage-backed securities.

Keep learning

A debt security through which an investor lends money to an issuer in return for promised payments.

The government, company, or organisation that creates and sells a security.

The principal amount stated on a bond and usually repaid at maturity.

A short-term government debt instrument usually issued at a discount and repaid at face value.

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