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Chapter 19. Working with Bonds > Calculating Bond Duration

Calculating Bond Duration

If you hold a bond to maturity, the only risk you run is that the issuer will default and you will lose the principal plus any future interest. That's relatively rare (unless you invest in so-called junk bonds, high-risk bonds issued by companies with very low credit ratings), so bonds held to maturity represent a generally safe investment.

However, that's not the case if you intend to make money by buying and selling bonds. In general (and very simplistically), bond prices rise as interest rates fall (because the bond's coupon becomes relatively more attractive); conversely, bond prices fall as interest rates rise (because the coupon becomes relatively less attractive). Also, bond prices tend to converge toward the par value as the maturity date nears.


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