I know it’s reasons but the logic behind is something I m not being able to catch.
Minal GuptaBeginner
Why is effective duration close to modified duration when the price is close to par and when the bond is short term?
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I also dont know the correct logic but I think of it this way :
Since ED is curve based so the features of a curve were that it was convex And long term bonds are more volatile than short term bonds ..so within a short term a bonds ED and MD will be close since there will be little volatility. So it rates fell for a long term bond the price will increase at an increasing rate so ED will fluctuate far away from MD So for short term bonds ED is close to MD