If interest rates are positive, modified duration will always exceed Macaulay duration.

Question

Quizplus · Accepted Answer

Modified duration and Macaulay duration are equal when interest rates are continuously compounded. Modified duration is a measure of the price sensitivity of a bond to interest rate changes and is derived from Macaulay duration by adjusting for the yield to maturity. Macaulay duration calculates the weighted average time until a bond's cash flows are received. The statement that modified duration will always exceed Macaulay duration if interest rates are positive is not accurate because their relationship depends on the compounding frequency of the interest rates, not just their positivity.

If Interest Rates Are Positive, Modified Duration Will Always Exceed