Modified Duration

What is 'Modified Duration'

Modified duration is a formula that expresses the measurable change in the value of a security in response to a change in interest rates. Calculated as:

Modified Duration



Where:
n = number of coupon periods per year
YTM = the bond's yield to maturity

BREAKING DOWN 'Modified Duration'

Modified duration follows the concept that interest rates and bond prices move in opposite directions. This formula is used to determine the effect that a 100-basis-point (1%) change in interest rates will have on the price of a bond.

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RELATED FAQS
  1. What is the relationship between modified duration and interest rates?

    Learn about modified duration and Macaulay duration, how to calculate the durations of bonds, and how interest rates and ... Read Answer >>
  2. For what financial instruments is a modified duration relevant?

    Find out about modified duration, financial instruments the modified duration is used for and how to calculate the modified ... Read Answer >>
  3. What is the average profit margin of a company in the chemicals sector?

    Learn more about the Macaulay duration and the modified duration, how to calculate a bond's Macaulay duration and modified ... Read Answer >>
  4. What is the risk return tradeoff for bonds?

    Find out more about the Macaulay duration and modified duration, how to calculate them and the difference between the Macaulay ... Read Answer >>
  5. Which is a better metric, modified duration or Macaulay duration?

    Learn why the modified duration is a more useful metric than the Macaulay duration, and understand how the measures are different ... Read Answer >>
  6. What level of return on equity is average for companies in the chemicals sector?

    Learn more about the modified duration in fixed income securities and how to calculate a bond's modified Macaulay duration ... Read Answer >>
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