In 1938, Frederick R. Macaulay defined Duration as the total weighted average time for recovery of the interest payments and principal in relation to the current market price of the bond. The weighting is based on the present value of each cash flow divided by the price. This is one of two ways to calculate duration, the other being modified duration.

The calculation of a bond duration is a valuable strategic tool in the hands of bond investors because by measuring the average time to receipt of cash from a bond, it allows investors to measure a bond's price sensitivity to changes in market interest rates.