Duration measures a bond's sensitivity to changes in interest rates and is used to assess interest rate risk. The higher the duration, the more sensitive the bond or bond fund is to changes in interest rates. Various methods have been developed to measure duration, including modified duration, among others.
$$Modified\, duration \mmlToken{mo}[linebreak="auto"]{=} \frac{Macaulay\, duration}{\left( 1+ \frac{YTM}{n}\right)}$$
YTM— yield to maturity;
n— number of coupon payments per year.
See also:
Modified Duration FAQ
What does modified duration measure?
Modified duration measures how sensitive a bond's price is to a change in interest rates.
How is modified duration different from Macaulay duration?
Macaulay duration measures the weighted average time to receive cash flows, while modified duration adjusts that value to estimate price sensitivity to yield changes.
