Wednesday, February 22, 2023

In what way is the so called modified duration measure a modification of the Macaulay measure?

In what way is the so called modified duration measure a modification of the Macaulay measure? 


Ans. For calculating Modified duration, we first need to calculate Macaulay measure. The formula of modified duration divides the Macaulay measure by 1 plus bond’s average yield to maturity which is obtained by dividing YTM by n. Modified duration is calculated as:


In what way is the so called modified duration measure a modification of the Macaulay measure?



n = number of coupon periods per year measure YTM = the bond’s yield to maturity Hence, it is modification of Macaulay’s measure. 


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