Question

Why the modified duration is more effective than maturity when you need to calculate the bond's sensitivity to changes in interest rates?

Answer 1

Modified duration expresses the sensitivity of the price of a bond to a change in interest rate. So if the modified duration of a bond is less, it is similar to having less stock so that even if the interest rates were to change, the impact on price would be less and vice versa. Whereas maturity refers to the date when a bond's principle is repaid with interest.

So the higher a bond's duration, the more the bond's price will change when interest rates move, thus the higher the interest rate risk that's why modified duration is more effective than maturity.