Modified Duration

Modified Duration is derived from Macaulay Duration and directly measures the percentage change in a bond's price for a one percentage point (100 basis point) change in its yield to maturity, all else being equal. It is calculated as: Modified Duration = Macaulay Duration ÷ (1 + YTM/n), where n is the number of coupon periods per year. A Modified Duration of 5 means the bond's price will fall approximately 5% for every 1% rise in interest rates, and rise approximately 5% for every 1% fall in rates. It is the most widely used measure of interest rate risk in fixed-income portfolio management and is an essential metric for bond traders and fund managers in India's debt markets.