How do you calculate bond duration?

The first way to calculate the duration of a bond is by using a model known as the Macaulay duration. Using the model, the aggregate of the present value of all cash flows from a bond is divided by its current market price. The model calculates the time the present value of cash flows from a bond takes to realize.

How does bond duration help investors assess risk?

Bond duration expresses a bond’s vulnerability to interest rate risk. The larger the bond duration number, the more reactive a bond’s price is to interest rate changes, as the bond’s yield adjusts to reflect those changes. Loses approximately 11% of its market value for every 1% rise in its yield 1

How can bond duration be used to determine a bond's fit in an investment portfolio?

For most investors, the primary importance of bond duration is that it predicts how sharply the market price of a bond will change as a result of changes in interest rates. Specifically, when interest rates rise, a bond’s price will fall by an amount approximately equal to the change in the applicable interest rate, times the duration of the bond.