Duration

Bond duration and maturity are often confused, but the two are actually quite different. The maturity date is the date when an issuer – usually the government or a company – plans to repay the bond. Duration, on the other hand, is the point at which a bond reaches the mid-point of its cash flows.

For example, take a very simple bond that redeems after four years for £100 and pays a coupon of £50 at the end of every year. By the end of year three you will have received £150 in three coupons but still be waiting for the fourth coupon and the £100. So you will have reached the bond’s mid point, making the duration three years. Duration is thus influenced heavily by two factors: the coupon rate on the bond and the number of years remaining until it is redeemed.

• See Tim Bennett’s video tutorial: Bond basics.

MoneyWeek magazine

Latest issue:

Magazine cover
Faster and faster...

The frenzied pace of the high-tech revolution

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.