Modified duration estimates how much a bond's price will change for a 1% change in yield. Longer-duration bonds are more sensitive to rate moves. Macaulay duration is the weighted-average time to receive a bond's cash flows; modified duration adjusts it for yield.
Formula
Approx. price change (%) ≈ −Modified Duration × Change in Yield
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Example
A bond with a modified duration of 5 falls about 5% in price if yields rise by 1%.
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Relevant NISM series
CFANISM Series XV
See Duration in exam questions
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