Duration is basically a measurement of what?

• A. The time it takes for cash flows to repay the invested principal.
• B. The bond's yield to maturity.
• C. The issuer's credit risk.
• D. The probability of default.

Answer: (A)

Duration measures the weighted average time until a bond’s cash flows are received, effectively showing when the invested principal is repaid. Each cash flow is weighted by its present value relative to the bond’s price, and the sum of those times gives the duration. This concept helps explain interest-rate risk: bonds with longer duration have cash flows arriving later, so their prices are more sensitive to changes in yields. Duration is not a measure of yield to maturity, credit risk, or default probability—those relate to return assumptions and credit quality, not the timing of principal repayment.