Modified Duration

What Does Modified Duration Mean?
A formula that expresses the measurable change in the value of a security in response to a change in interest rates. Calculated as:

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

Investopedia explains 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.

Related Terms

Basis Point
Coupon
Duration
Effective Duration
Empirical Duration
Interest Rates
Key Rate Duration
Macaulay Duration
More Related Terms

Related Links

Advanced Bond Concepts: Duration - Bonds with higher duration carry more risk, making this measure an important one for investors to calculate.
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It's In Your Interest - Discover the theoretical relationship between interest rates and stock prices.
The Impact Of Interest Rates On Real Estate Investment Trusts - REITs are high-yield investments, but do they have an inverse relationship with interest rates? Find out here.

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