The simplest measure of interest-rate sensitivity for an MBS is its effective duration. The modified duration of a bond assumes that cash flows do not change in response to movements in the term structure, which is not the case for an MBS. For instance, when rates fall, the rate of prepayments will probably rise and the duration of the MBS will also fall, which is entirely the opposite behavior to a vanilla bond. For this reason, effective duration formula_34 is a better single-figure measure of interest-rate sensitivity, where