Calculate Modified Duration
A formula that expresses the measurable change in the value of a security in response to a change in interest rates.
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A formula that expresses the measurable change in the value of a security in response to a change in interest rates.
What does this mean to you? Modified duration provides a good indication of a bond's sensitivity to a change in interest rates. The more your duration changes with a 1% increase in interest rates, the more volatility your bond will exhibit. The bonds with lower coupons and longer maturities tend to have greater price volatility than bonds with higher coupon rates and shorter maturities.
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