Understanding Bond Duration AND Today’s Banks

What it Is – How it Works

[By Dr. David Edward Marcinko; MBA, CMP™]


Because of today’s stock market volatility, and virtual collapse in some banks and world equities, an interesting question often arises when the physician-investor considers investing in bonds; as more and more are doing.


How much will a bond’s price change from a 1 percent change in interest rates? 

Duration Defined

To answer this, consider the concept of duration.  According to Jeff Coons PhD, CFP™, a bond’s duration is the weighted average life of its cash flows.

Thus, if your bond pays $60 per year in coupon payments for ten years and $1,000 in par value at the end of the ten years, the duration is the length of time that it takes for you to receive the present value of the coupon payments and par value. 

CITE: https://www.r2library.com/Resource/Title/082610254


How does this help answer the original question?  There is a handy rule-of-thumb that says the duration of a bond times the change in market interest rates is the approximate price change of the bond.  Thus, the price of a ten-year Treasury bond with a duration of approximately 7.8 years will appreciate (decline) by about 7.8 percent with a drop (increase) in interest rates of 1 percent.


For each of the two basic types of bonds, the duration is the following:

1. Zero-Coupon Bond – Duration is equal to its time to maturity, and

2. Vanilla Bond – Duration will always be less than its time to maturity. 

Channel Surfing the ME-P

Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register. It is fast, free and secure.

The BANKS: https://www.fool.com/investing/2023/03/30/why-is-everyone-talking-about-duration/


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Product DetailsProduct DetailsProduct Details

Product Details  Product Details

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

2 Responses

  1. Bond Bull Market Ending?

    Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said a renewal of asset purchases by the Federal Reserve will likely signify the end of the 30-year bull market in bonds.


    So FAs – what do you think?



  2. On Rising Interest Rates and Fixed Income Investments

    We recommend effective strategies to lower potential interest risks: diversify your fixed-income investments, shorter duration bond strategies, and globally oriented strategies.

    With these strategies in place, investors can be more confident of protecting their portfolios against any raise in interest rates. We also believe that rising interest rates will not necessarily have a negative impact on bond funds.

    Therefore, we still recommend diversified portfolios that include fixed income investments to offset the volatility of the stock portion of the portfolios.

    Patrick Bourbon CFA


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: