A bond has Macaulay duration of 7.5. Which of the following is the best estimate of its modified duration?
A) 7.4
B) 7.7
C) 8.0
D) 9.5

Question

Quizplus · Accepted Answer

Modified duration is slightly less than Macaulay duration for bonds not at par value, because it accounts for the change in interest rates and its effect on bond prices. Since the Macaulay duration is 7.5, an estimate slightly less than this, such as 7.4, would be the best estimate for the modified duration.

A Bond Has Macaulay Duration of 7