Effective duration

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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
	Dollar duration Duration Duration gap Duration mismatch Effective annual interest rate Effective annual yield Effective call price Effective convexity Effective date Effective interest rate international context Effective margin Effective rate Effective spread Effective strike price Effective true annual rate Macaulay duration Modified duration Mortgage duration Negative duration Option adjusted duration

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