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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Modified duration

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by AvatarJohn Moffat.
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  • July 18, 2020 at 2:24 am #577250
    Avatarconfideans
    Participant
    • Topics: 39
    • Replies: 25
    • ☆☆

    When we want to know how much the market value is going to be affected by changes in required return, we use the modifiend duration.

    I know how to cacluate it but i am still struggling the real meaning behind it.

    Changes in required returns means the change in interest rates or change in required rate of return?

    Thank you very much.

    July 18, 2020 at 9:55 am #577275
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54846
    • ☆☆☆☆☆

    It means the investors required rate of return. The market value is always the present value of the future inflows discounted at the investors required rate of return and the return they require is likely to change in the future.

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