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Modified Duration |
Also found in: Wikipedia | 0.04 sec. |
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Modified Duration A formula that expresses the measurable change in the value of a security in response to a change in interest rates. Calculated as the following: ![]() Where: n = number of coupon periods per year YTM = the bond's yield to maturity Notes: Modified duration follows the concept that interest rates and bond prices move in opposite directions. This formula is used to determine the effect a 100 basis point (1%) change in interest rates will have on the price of a bond.Modified duration The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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