The weighted average maturity period is known as the Macaulay Duration. It indicates the period during which the bondholder will receive the invested amount or bond price. This concept is most commonly used by portfolio managers for the immunization of bonds. As per the question, the modified duration for a 10-year, 12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years is 6.8 Years.
Modified duration is a system that expresses the measurable exchange in the cost of safety in reaction to trade-in interest fees. changed duration follows the concept that interest fees and bond charges move in opposite directions.
The changed length gives an excellent measurement of a bond's sensitivity to adjustments in interest rates. The better the Macaulay duration of a bond, the higher the resulting changed length and volatility to interest price adjustments.
So better the changed length, the better the threat of rate fluctuation, and the lower the changed period, the decrease will be the charge fluctuation. essentially, the rate of a bond and the interest price have an inverse relationship, i.e. if the interest costs upward push, fee of the bond could fall and vice versa.
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