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