9-73 Calculating modified duration involves
A)dividing the value of duration by the change in the market interest rate.
B)dividing the value of duration by 1 plus the interest rate.
C)dividing the value of duration by discounted change in interest rates.
D)multiplying the value of duration by discounted change in interest rates.
E)dividing the value of duration by the curvature effect.

Question

Quizplus · Accepted Answer

Modified duration is calculated by dividing the value of duration by (1 + interest rate). This is because modified duration is a measure of the price sensitivity of a bond to changes in interest rates, and dividing by (1 + interest rate) adjusts for the effect of compounding on bond prices.

9-73 Calculating Modified Duration Involves