modified duration

Definition

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.

Use modified duration in a sentence

If you are going to be investing in a bond you should try and follow it through out its modified duration.

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You should try and make sure that you are following things for the modified duration so that you know how it is going.

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Due to complexity, the modified duration of a bond is often over-looked, yet it is an important consideration when comparing investment options.

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negative duration convexity