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What is modified duration in Debt market

I have understood duration but what is the difference between modified duration and duration?

3 Answer(s)


Duration and Modified Duration are investment tools to help investors
Duration measures average weighted time before repayments, while Modified Duration is focused more on change in price percentage relative to yields


duration- also known as macaulay duration..
it is the measure of the time taken to recover the initial investment in the present value terms, it also refers to the pay back period of a bond to break even i.e the time taken for the bond to repay its own purchase price.

MODIFIED DURATION-it is the modified version of duration..it refers to the change in the value of the security to change in the int yield/int. rate...


basically duration is a tool to measure price sensitivity.....it is the measurement of how long in years it take for the price of the bond to be repaid by its internal cashflows....
whereas MODIFIED DURATION it measures the sensitivity of the assets price to interest rate movements expressed in n. of years

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