What does duration measure in the context of interest rate risk?

Duration is an important concept in measuring interest rate risk, primarily because it reflects how sensitive a bond's price is to changes in interest rates. This sensitivity is crucial for investors since bond prices typically move inversely with interest rate changes. When interest rates rise, bond prices fall, and vice versa. Thus, duration serves as a tool for assessing the potential price volatility of bonds in response to interest rate shifts.

While duration does involve timing aspects related to cash flows, what truly distinguishes it as a measure is its ability to quantify this sensitivity. It provides investors with a single figure that encapsulates the risk associated with interest rate fluctuations, allowing for effective portfolio management and risk assessment.

The other options, while related to bond characteristics, do not capture this essential measure of price sensitivity. For instance, the average time until cash flows are received describes a bond’s cash flow timing without directly addressing how price reacts to interest rate changes. Similarly, total interest income generated by a bond pertains to revenue rather than risk, and volatility in the secondary market addresses price fluctuations without specifically factoring in the impact of interest rates.