Question: Modified Duration (DMOD) a) DMOD = D D = Macaulay duration k = current YTM m = number of payments in a year 1 +

Modified Duration (DMOD) a) DMOD = D D = Macaulay duration

Modified Duration (DMOD) a) DMOD = D D = Macaulay duration k = current YTM m = number of payments in a year 1 + k/m b) x 100 = - DMOD X ) x = - P Example: D= 8 years, i =10% expect I to drop by 0.75% to 9.25% Assume coupen payment is made twice a year

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