[Verse 1]
When interest rates start to climb and fall
Bond prices dance, they heed the call
But some bonds move more, some move less
Duration helps us measure this
It's not just time until it's due
It's weighted time that's tried and true
Each cash flow has its moment here
Discounted by the rate we bear
[Chorus]
Duration measures price sensitivity
To rate changes, that's the key
Higher duration means more risk
When rates move, prices take a bigger twist
D-U-R-A-T-I-O-N
Helps portfolio managers defend
Against the interest rate storm
Duration keeps portfolios warm
[Verse 2]
Modified duration tells the tale
Of how much prices will curtail
When rates go up by one percent
Your bond's value will be bent
If modified duration's five
And rates increase, your bond will dive
By five percent, that's the rule
Duration is the manager's tool
[Chorus]
Duration measures price sensitivity
To rate changes, that's the key
Higher duration means more risk
When rates move, prices take a bigger twist
D-U-R-A-T-I-O-N
Helps portfolio managers defend
Against the interest rate storm
Duration keeps portfolios warm
[Bridge]
Portfolio managers use this measure
To hedge their risk and guard their treasure
Match duration to their goals
Keep interest rate risk in control
Immunize against rate shock
Duration matching is the rock
That keeps portfolios stable and sound
When market rates spin around
[Verse 3]
Longer maturity means more duration
Higher coupon brings truncation
Lower yields increase the measure
Duration is the risk we treasure
Portfolio duration is the blend
Of all the bonds from start to end
Weighted average tells the story
Of your portfolio's rate worry
[Chorus]
Duration measures price sensitivity
To rate changes, that's the key
Higher duration means more risk
When rates move, prices take a bigger twist
D-U-R-A-T-I-O-N
Helps portfolio managers defend
Against the interest rate storm
Duration keeps portfolios warm
[Outro]
Remember this when bonds you trade
Duration's how the game is played
Price sensitivity in your hand
Duration helps you understand