CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties
A bond has a Macaulay duration of 7.20 years and a yield to maturity of 4.00% per year, compounded annually. The bond's modified duration is closest to:
Modified duration equals Macaulay duration divided by one plus the periodic yield. Here 7.20 divided by 1.04 gives about 6.92. Multiplying by 1.04 instead would wrongly give 7.49, and leaving the figure unchanged ignores the yield adjustment.
- A6.92Correct
- B7.20
- C7.49
Explanation
Modified duration = Macaulay duration / (1 + YTM) = 7.20 / 1.04 = 6.923. Option C multiplies by (1 + y) instead of dividing, giving 7.49. Option B ignores the adjustment.
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