Modified duration tells that how sensitive the bond price is in relation to the change in interest rates.
The formula for calculating modified duration is = D/ [1 + (YTM/n)]
where D is the time period/ duration, YTM is the yield to maturity and number of coupon periods in a year.
It helps in determining the effect that a 1% change or 100 basis point change in interest rate will have on the market price of the bond.
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