Modified Duration


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.

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