Definition of Macaulay duration:
Approximate measure of the price volatility and interest rate-sensitivity of a fixed-income financial instrument such as an interest bearing bond. It is computed as the weighted average time remaining until receipt of a series of cash flows from the instrument, the weights being the present value of the cash flow divided by the instruments price. Invented in 1938 by the US academic Frederick Macaulay. See also modified duration.
The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price. Macaulay duration is frequently used by portfolio managers who use an immunization strategy.
Macaulay duration can be calculated:.
Meaning of Macaulay duration & Macaulay duration Definition