Bond Duration Introduction

The bond duration calculation is illustrated using a zero coupon bond as an example.  The video mentions two different ways to measure duration; Macaulay duration and modified duration.  Macaulay duration is a weighted average time to receive cash flows.  The second technique is referred to as the modified duration.  Modified duration measures the changes in the bonds price to changes in the bond yield.  Modified duration provides a linear approximation of the change in the bond price as yields shift. 

He goes on to mention that the linear estimation will underestimate the true change in bond price when yields change.  The difference between the actual change and the estimated change from duration is known as convexity.