Effective duration

Definition:

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 that expected cash flows will change as interest rates change due to the embedded option.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Pension Benefit Guaranty Corporation (PBGC)

A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).

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