How to Calculate Approximate Modified Duration
Updated: Jul 26, 2021
The general formula for approximate modified duration:
Example: An annual coupon bond maturing in ten years pays a $100 dividend and trades at par. Calculate the approximate modified duration of the bond assuming a 1% yield change.
Estimating Price Changes Using Approximate Modified Duration
Given that the modified duration is 6.5134 approximate the change in price that results from a 2% increase in the yield.
Approx Change: -6.5135 *.02 = -12.3069%
1000 * (1-.123069) = $876.93