Effective Duration
A measure of a fixed-income security's price sensitivity to parallel shifts in interest rates that accounts for potential changes in cash flows due to embedded options.
Example: Example: A callable corporate bond may show an effective duration lower than its Macaulay duration because if yields fall, the issuer is more likely to call the bond, limiting price gains. This reflects the bond's option-adjusted price behavior rather than fixed-cash-flow sensitivity.
💬 Comments