Asked by Grace Ecton on May 23, 2024
Verified
The "modified duration" used by practitioners is equal to ______ divided by (one plus the bond's yield to maturity) .
A) current yield
B) the Macaulay duration
C) yield to call
D) yield to maturity
E) None of the options are correct.
Modified Duration
A measure of the sensitivity of a bond's price to changes in interest rates, indicating the price change in percentage terms for a yield move of one percent.
Macaulay Duration
A measure of the weighted average time until a bond's cash flows are paid back, used to assess interest rate risk.
Yield To Maturity
The total return anticipated on a bond if held until it matures.
- Carry out and articulate the computations of Macaulay and modified durations for various bonds.
Verified Answer
RA
Riley AkinsMay 23, 2024
Final Answer :
B
Explanation :
The "modified duration" is calculated as the Macaulay duration divided by (1 + the bond's yield to maturity). This measure adjusts the Macaulay duration for the bond's yield to maturity, providing a more accurate measure of interest rate sensitivity.
Learning Objectives
- Carry out and articulate the computations of Macaulay and modified durations for various bonds.