Macaulay Duration

Macaulay Duration is a measure used by investors to estimate the average time it takes to receive the total cash flow from a bond, weighted by the present value of each payment. It reflects the bond's sensitivity to interest rate changes—longer duration means higher risk. Essentially, it tells you how long, on average, your invested money is tied up until you are repaid, considering the timing and amount of all future payments. This helps investors assess interest rate risk and decide how long they are comfortable holding a bond before needing the invested funds.