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Modified Duration

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0.04 sec.

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.

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