[Verse 1]
When interest rates climb or tumble down
Bond prices swing like a pendulum crown
But how much they move, that's the mystery we chase
Modified duration shows us the pace
[Chorus]
Modified duration, the sensitivity key
Divide Macaulay by one plus the yield, you see
Percentage change in price for each rate shift of one
Modified duration gets the job done
Price drops when rates rise, that's the golden rule
Modified duration is your measuring tool
[Verse 2]
Take Macaulay duration, that's your starting place
Then divide by one plus yield to maturity's base
The answer reveals how much your bond will sway
When interest rates move either way
[Chorus]
Modified duration, the sensitivity key
Divide Macaulay by one plus the yield, you see
Percentage change in price for each rate shift of one
Modified duration gets the job done
Price drops when rates rise, that's the golden rule
Modified duration is your measuring tool
[Bridge]
Higher duration means more volatile swings
Lower duration keeps your portfolio's wings
Clipped tight when market storms arrive
Use this metric to help portfolios thrive
[Verse 3]
Portfolio managers watch this number close
It predicts which bonds will hurt the most
When Federal Reserve shifts their stance
Modified duration reveals price's dance
[Chorus]
Modified duration, the sensitivity key
Divide Macaulay by one plus the yield, you see
Percentage change in price for each rate shift of one
Modified duration gets the job done
Price drops when rates rise, that's the golden rule
Modified duration is your measuring tool
[Outro]
From Treasury bills to corporate debt
This formula helps you place your bet
Modified duration, memorize the name
Risk assessment is the investment game