## What is Loss Aversion?

The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.

Macaulay duration is frequently used by portfolio managers who use an immunization strategy.

## Factors that Affect Macaulay Duration

The Macaulay duration of a bond can be impacted by the bondâ€™s coupon rate, term to maturity, and yield to maturity. With all the other factors constant, a bond with a longer term to maturity assumes a greater Macaulay duration, as it takes a longer period to receive the principal payment at the maturity. It also means that Macaulay duration decreases as time passes (term to maturity shrinks).

Macaulay duration takes on an inverse relationship with the coupon rate. The greater the coupon payments, the lower the duration is, with larger cash amounts paid in the early periods. A zero-coupon bond assumes the highest Macaulay duration compared with coupon bonds, assuming other features are the same. It is equal to the maturity for a zero-coupon bond and is less than the maturity for coupon bonds.

Macaulay duration also demonstrates an inverse relationship with yield to maturity. A bond with a higher yield to maturity shows a lower Macaulay duration.