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Effective duration

• Measures the percentage change in price for a 1 percentage point or 100 basis point change in interest rates.

• also known as Option-Adjusted duration measures the responsiveness of bond prices to changes in interest rates after taking into account the fact that the cash flow expected from a bond could change because of the bond's embedded call features or options.

• The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price taking into account the expected cash flows will change as interest rates change due to the embedded option.

 
 

Follow this link for all the terms related to ratio.

 
 Embedded terms in definition
 Basis point
Basis
Bond
Call feature
Call
Cash flow
Cash
Change
Duration
Embedded option
Interest rate
Interest
Options
Option
Point
Prices
Will
 
 Related Terms
 

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