.

Likewise, people ask, how do you calculate modified duration?

Modified duration is a measure of a bond price sensitivity to changes in its yield to maturity. It is calculated by dividing the Macaulay's duration of the bond by a factor of (1 + y/m) where y is the annual yield to maturity and m is the total number of coupon payments per period.

One may also ask, what is the difference between effective duration and modified duration? While effective duration is a more complete measure of a bond's sensitivity to interest rate movements versus the Macauley or modified duration measures, it still falls short because it is a linear approximation for small changes in yield; that is, it assumes that duration stays the same along the yield curve.

Considering this, what is the meaning of modified duration?

Modified duration is a formula that expresses the measurable change in the value of a security in response to a change in interest rates. Modified duration follows the concept that interest rates and bond prices move in opposite directions.

How do you calculate modified duration in Excel?

The formula used to calculate a bond's modified duration is the Macaulay duration of the bond divided by 1 plus the bond's yield to maturity divided by the number of coupon periods per year. In Excel, the formula used to calculate a bond's modified duration is built into the MDURATION function.