[Verse 1]
When interest rates start to climb or fall
Your bond's price moves, it's natural law
But how much will that price change be?
There's a measure called duration, you see
It's not just time until it's due
Modified duration shows what prices do
[Chorus]
Modified duration, price sensitivity
Divide by one plus yield, that's the key
Higher duration means more price swing
When rates change, it's a powerful thing
Mod D times rate change, price moves that way
Duration helps you sleep at night, trade by day
[Verse 2]
Take Macaulay duration first
Then modify it, here's how it works
Divide by one plus the yield rate
This adjustment seals your bond's fate
If duration's five and rates drop one percent
Your bond price rises, five percent it's sent
[Chorus]
Modified duration, price sensitivity
Divide by one plus yield, that's the key
Higher duration means more price swing
When rates change, it's a powerful thing
Mod D times rate change, price moves that way
Duration helps you sleep at night, trade by day
[Bridge]
Long-term bonds have higher duration
Short-term bonds, less price variation
Lower coupons mean more sensitivity
Higher coupons, more stability
It's an inverse relationship dance
When rates go up, bond prices can't advance
[Verse 3]
Portfolio managers use this tool
For hedging risk, it's pretty cool
Match your assets with liabilities
Duration matching brings tranquilities
Risk assessment becomes more clear
With modified duration always near
[Chorus]
Modified duration, price sensitivity
Divide by one plus yield, that's the key
Higher duration means more price swing
When rates change, it's a powerful thing
Mod D times rate change, price moves that way
Duration helps you sleep at night, trade by day
[Outro]
So remember when you're trading bonds today
Modified duration shows the price display
When interest rates shift up or down
This measure keeps you safe and sound