Modified Duration

Learn how to use modified duration in evaluating the impact of interest rates on bond investments.

By Keith Speights – Updated Nov 19, 2024 at 12:02 PM

Key Points

Modified duration measures price sensitivity to interest rate changes.
The calculation for modified duration is relatively straightforward.
Modified duration is important for investors in determining whether to buy, sell, or hold bonds.

Modified duration is an unfamiliar term for many investors, but the underlying idea probably isn't. The valuation of securities, particularly bonds, changes as interest rates change. Modified duration gives investors a way to measure this change.

Below, we'll explain in more detail exactly what modified duration is, how to calculate it, and provide an example of how to use it. We'll also discuss why modified duration is important for investors.

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An infographic explaining how to calculate modified duration. — Image source: The Motley Fool.

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About the Author

Keith Speights is a contributing Motley Fool healthcare analyst covering publicly traded companies across pharmaceuticals, biotechnology, medical devices, technology, and marijuana. Prior to The Motley Fool, Keith was CEO of Constant Care Technology, a healthcare technology company; vice president of American HealthTech, a healthcare software company; and a director of operations for Blue Cross Blue Shield of Mississippi, a health insurer. He holds a B.S. in Industrial Engineering from Mississippi State University.

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