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Finance Dictionary and Glossary of Investment Terms
Modified Duration
Definition 1.
A formula that expresses the measurable change in the value of a security in response to a change in interest rates. Calculated by:Where:n = number of coupon periods per yearYTM = The bond's yield to maturity
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Definition 2.
A measure of the price sensitivity of a bond to interest rate movements. Equal to the Macaulay Duration divided by (1+ (bond yield/k)) where k is the number of compounding periods per year. It is therefore inversely proportional to the approximate percentage change in price for a given change in yield. This is one of two ways to calculate duration, the other being Macaulay duration.
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