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Modified Duration Formula

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Modified Duration, a formula commonly used in bond valuations, expresses the change in the value of a security due to a change in interest rates. Check FAQs

MD = \frac{Macaulay dur}{1 + \frac{YTM}{n}}

MD - Modified Duration?Macaulay_dur - Macaulay Duration?YTM - Yield to Maturity (YTM)?n - Coupon Periods?

Modified Duration Example

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Here is how the Modified Duration equation looks like with Values.

Here is how the Modified Duration equation looks like with Units.

Here is how the Modified Duration equation looks like.

0.2857 = \frac{2}{1 + \frac{12}{2}}

0.2857 = \frac{2}{1 + \frac{12}{2}}

0.2857 = \frac{2}{1 + \frac{12}{2}}

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Modified Duration Solution

Follow our step by step solution on how to calculate Modified Duration?

FIRST Step Consider the formula

MD = \frac{Macaulay dur}{1 + \frac{YTM}{n}}

Next Step Substitute values of Variables

∴

MD = \frac{2}{1 + \frac{12}{2}}

Next Step Prepare to Evaluate

∴

MD = \frac{2}{1 + \frac{12}{2}}

Next Step Evaluate

∴

MD = 0.285714285714286

LAST Step Rounding Answer

∴

MD = 0.2857

Modified Duration Formula Elements

Variables

Modified Duration

Modified Duration, a formula commonly used in bond valuations, expresses the change in the value of a security due to a change in interest rates.

Symbol: MD

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Modified Duration

Macaulay Duration

Macaulay Duration is the weighted average time until cash flows are received.

Symbol: Macaulay_dur

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Macaulay Duration

Yield to Maturity (YTM)

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until the end of its lifetime.

Symbol: YTM

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Yield to Maturity (YTM)

Coupon Periods

Coupon Periods refers to the annual interest paid on a bond.

Symbol: n

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Coupon Periods

Other formulas in Business category

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Go Inventory Shrinkage

IS = (\frac{RI - I}{RI}) \cdot 100

Go Macaulay Duration

Macaulay dur = \sum (x, 1, 5, cfn, ({(\frac{CF}{1 + \frac{YTM}{n c}})}^{cfn})) \cdot (\frac{T yrs}{PV})

How to Evaluate Modified Duration?

Modified Duration evaluator uses Modified Duration = Macaulay Duration/(1+Yield to Maturity (YTM)/Coupon Periods) to evaluate the 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 is denoted by MD symbol.

How to evaluate Modified Duration using this online evaluator? To use this online evaluator for Modified Duration, enter Macaulay Duration (Macaulay_dur), Yield to Maturity (YTM) (YTM) & Coupon Periods (n) and hit the calculate button.

FAQs on Modified Duration

What is the formula to find Modified Duration?

The formula of Modified Duration is expressed as Modified Duration = Macaulay Duration/(1+Yield to Maturity (YTM)/Coupon Periods). Here is an example- 1.142857 = 2/(1+12/2).

How to calculate Modified Duration?

With Macaulay Duration (Macaulay_dur), Yield to Maturity (YTM) (YTM) & Coupon Periods (n) we can find Modified Duration using the formula - Modified Duration = Macaulay Duration/(1+Yield to Maturity (YTM)/Coupon Periods).

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Modified Duration Formula

Modified Duration Example

Modified Duration Solution

Modified Duration Formula Elements

Other formulas in Business category

How to Evaluate Modified Duration?

FAQs on Modified Duration

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