Enter the Macauley duration, the yield to maturity, and the number of coupon periods period year to calculate the modified duration.
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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
Modified duration is defined as the ratio of the change in the value of a security with the change in the 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.
Modified duration is a measure of the change of the value of a security from the change in its interest rates.
Macauley duration is the weighted average term to maturity of the cash flows from a bond.