Explanation

Money duration (also known as dollar duration) is defined as the estimated change in a bond's full price (in currency units) for a given change in the annual yield to maturity.

Let's analyze each option:

Option A: "the bond's Macaulay duration times the bond's full price." - This describes modified duration, not money duration. Modified duration = Macaulay duration / (1 + yield). Money duration is modified duration times the bond's full price.

Option B: "the estimated change in the bond's full price in currency units for a given change in the annual yield to maturity." - This is the correct definition of money duration. It represents the price sensitivity in monetary terms.

Option C: "one half of the difference in the bond's full prices given a 1 basis point decrease and 1 basis point increase in yield-to-maturity." - This describes effective duration, which measures the sensitivity of a bond's price to changes in interest rates, particularly for bonds with embedded options.

Key Formulas:

• Money Duration = Modified Duration × Full Price
• Modified Duration = Macaulay Duration / (1 + Yield)
• Effective Duration = (P_- - P_+) / (2 × P_0 × Δy)

Money duration is particularly useful for portfolio managers who need to understand the actual dollar impact of interest rate changes on their bond holdings.