Hello, i was going through an exercise in which they ask what would happen to a price of a bond if the interest rate increases by 0.1. in this case, before this question i had to calculate the duration and the modified duration. Then, when i have to compute the percentage decrease in the price with the formula D/(1+y) * delta Y, i was wondering if i had to use the modified duration or the 'standard' one. Thanks
Whenever you want to compute the percentage change in prices given a percentage change in yields, you need to use modified duration. Otherwise, you can use Macaulay duration