Modified duration is equal to Macaulay duration divided by (1 + y). Since T-notes pay semiannually, the “y” is equal to (0.065/2) or 0.0325. The Macaulay duration is expressed in semiannual periods (4.3 periods years times 2 periods per year = 8.6 periods). Therefore, the modified duration = 8.6 semiannual periods/1.0325 = 8.329 semiannual periods, or 4.16 years. |
