Modified duration
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield. |
Similar financial terms
Modified pass-throughsAgency pass-throughs that guarantee (a) timely interest payments and (b) principal payments as collected, but no later than a specified time after they are due.
Negative duration
A situation in which the price of the MBS moves in the same direction as interest rates.
Mortgage duration
A modification of standard duration to account for the impact on duration of MBSs of changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that reflects the impact of changes in prepayment speed or price.
Macaulay duration
The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price of the bond.
D = [(1 x (C/1+y)) + (2 x (C/1+y^2)) + (3 x ((C + FV)/1+y^3))] / [(C/1+y) + (C/1+y^2) + (C + FV/1+y^3)]
Duration
A measure of a bond's price sensitivity to changes in interest rates.
