Modified Duration: Understanding its Role in Bond Price Fluctuations 30 oktober 2024 – Posted in: Forex Trading
By incorporating the yield to maturity, the formula accounts for the time value of money, a key consideration in bond valuation. For example, a bond with a modified duration of 5 is expected to decrease in price by approximately 5% if interest rates rise by 1%. As such, it gives us a (first order) approximation for the change in price of a bond, as the yield changes. It’s a metric that gives a simplified view…
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