In fixed income, an estimate of the price volatility of a bond. Longer duration bonds are more sensitive to changes in rates than shorter duration bonds.

The percentage change in price for a bond equals the modified duration times the change in yield times -1. (delta p = mdur * delta i * -1) For example, using modified duration one would predict that a bond with a modified duration of 5.0 would fall in value (i.e. price) 5% given a 1% rise in interest rates.

To calculate modified duration, take Macaulay duration and divide it 1+ (yield/k), where k is the number of coupon payments per year (typically 2).

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