Duration: Duration is the term-weighted average time weighted by the ratio of the present value of each cash flow to the present value of the total cash flow.

Economic significance of duration: duration is a tool to measure the sensitivity of asset or liability prices to interest rate changes. In other words, the greater the value of d, the greater the sensitivity of asset or liability prices to changes in interest rates.

The difference between duration and term: duration is based on the time value of money and measures the time required for financial institutions to recover the initial investment of loans. Therefore, the long-term received cash flow reflects the recovery of the initial loan investment, and the cash flow received between long-term maturity dates is the profit earned by financial institutions. Maturity period = investment recovery time (period)+profit time. Compared with the term, duration is a more accurate method to measure the interest rate sensitivity of assets and liabilities. Duration takes into account the occurrence time of each cash flow. If the cash flow occurs before the maturity date, the duration must be less than the maturity date. If there is no cash flow, duration equals maturity.