Oct 08, 2026 by Offer

What is duration: Answer Guide 2027

Duration is the weighted-average time until a bond's cash flows arrive, and it doubles as the measure of sensitivity to interest-rate changes. This duration bonds interview answer gives both meanings: Macaulay duration in years, and modified duration — roughly the percentage price change for a 1% yield move. Longer maturities and lower coupons mean higher duration.

What the Duration Bonds Interview Interview Question Tests

Whether you can give both definitions: time-weighted cash flows AND price sensitivity to yields.
Whether you know what drives it: maturity (+), coupon (−), yield (−).
Whether you can use it: estimate price impact of a rate move with modified duration.

How to Answer the Duration Bonds Interview Interview Question

How to Answer the Duration Bonds Interview Question

Deliver both meanings, then the drivers:

Meaning 1 — time. Macaulay duration = weighted-average time to receive the bond's cash flows (weights = present value of each cash flow). A 10-year 5% bond's duration is well under 10 years because coupons arrive earlier.
Meaning 2 — risk. Modified duration ≈ percentage price change per 1% yield move. Duration 7 → +1% yield ≈ −7% price. This is the definition traders use daily.
The drivers. Longer maturity → higher duration. Lower coupon → higher duration (more weight on the distant principal). Zero-coupon: duration = maturity.
The fine print. Duration is a linear approximation of a convex curve — fine for small moves, needs convexity for large ones.

The interview line: "Duration is the average waiting time for cash, which happens to equal the bond's interest-rate risk — higher duration, bigger price swings when yields move."

Common Mistakes With the Duration Bonds Interview Interview Question

Giving only the 'average time' definition and missing the risk meaning — interviewers want both.
Confusing duration with maturity: a 10-year high-coupon bond has duration well under 10 years.
Forgetting it is an approximation: duration is linear, but price-yield is convex — big moves need convexity.

Duration is the fixed-income concept interviewers assume you know cold. Candidates who connect the time definition to the risk definition — and can estimate a price move on the spot — clear the bar easily.

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FAQ

What is the difference between Macaulay and modified duration?

Macaulay is the weighted-average time to receive cash flows, in years. Modified duration = Macaulay/(1+yield), and directly estimates price sensitivity: % price change ≈ −modified duration × yield change.

What increases a bond's duration?

Longer maturity and lower coupons raise duration; higher yields lower it slightly. A zero-coupon bond's duration equals its maturity — the maximum.

How do you estimate a bond's price change?

Multiply modified duration by the yield change: a bond with modified duration 7 falls roughly 7% if yields rise 1%. It's a linear approximation.

What is convexity?

The curvature of the price-yield relationship. Duration gives the straight-line estimate; convexity corrects it — mattering most for large rate moves and long bonds.

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