Written, signed, unconditional, and unsecured promise by one party (the maker or promisor) to another (the payee or promisee) that commits the maker to pay a specified sum on demand, or on a fixed or a determinable date. Promissory notes (such as bank or currency notes) are negotiable instruments.
Advanced Bond Concepts: Duration. The term duration has a special meaning in the context of bonds. It is a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows. It is an important measure for investors to consider, as bonds with higher durations carry more risk and have higher price volatility than bonds with lower durations.
Duration is useful in measuring a bond fund's sensitivity to changes in interest rates. The longer the duration, the more a bond fund's price will fluctuate when interest rates change.To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates.If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price.A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.uration is useful in measuring a bond fund's sensitivity to changes in interest rates. The longer the duration, the more a bond fund's price will fluctuate when interest rates change.