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.
However, higher risk means higher potential reward: A bond with higher duration will have larger gains when interest rates fall than a similar bond with a lower duration. The impact of a change in interest rates on a bondâs price, or its interest rate risk, is measured by the bondâs duration.n the case of a bond with a duration of 8, a 1% rise in market interest rates would cause the bond to decrease in value 8%. Conversely, a 1% fall in interest rate would cause the bondâs value to increase by 8%.