Enter the Macauley duration, the yield to maturity, and the number of coupon periods period year to calculate the modified duration.
Modified Duration Formula
The following formula is used to calculate a modified duration.
MD = MCD / (1+ YTM/n)
- Where MD is the modified duration\
- MCD is the Macauley duration
- YTM is the yield to maturity
- n is the number of periods per year
Modified Duration Definition
A modified duration is defined as the ratio of the change in value of a security with the change in value of the interest rate.
Modified Duration Example
How to calculate a modified duration?
- First determine the Macauley Duration.
Calculate the weighted average term to maturity of the cash flows from a bond.
- Next, determine the yield to maturity.
Calculate the yield to maturity of the given security.
- Next, determine the number of coupon period per year.
As stated, calculate the number of periods per year.
- Finally, calculate the modified duration.
Use the formula and information from steps 1-3 to calculate the modified duration.
A modified duration is a measure of the change of the value of a security from the change in it’s interest rates.
Macauley duration is the weighted average term to maturity of the cash flows from a bond.