Modified Duration

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DEFINITION of '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:

Modified Duration



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.

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