Duration is a term used in finance which refers to financial cash flow. Examples include stocks, bonds, and some other business shares. Duration is an important factor in the determinant of price yields and some other percentages in the field of finance. The duration can be explained as time expected before receiving a repayment; it also means the percentage change in price.
This fact usually confuses people. Therefore, the duration is classed as Macaulay Duration and Modified Duration. Macaulay Duration is also known as duration, which refers to the average time before the repayment. Modified Duration is the percent change of price for another unit change in the yield; it also means price sensitivity.
It can be defined as a logarithmic derivative of prices with respect to the yield. Modified Duration depends on none other than yields. Macaulay Duration would take many years to measure while, on the other hand, Modified Duration focuses basically on the yields.
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