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 5% per year with annual compounding. The bond's modified duration is closest to:
Modified duration is about 6.86. It equals Macaulay duration divided by one plus the periodic yield, so 7.20 divided by 1.05 gives 6.857. Option 7.56 results from multiplying instead of dividing.
- A6.86Correct
- B7.20
- C7.56
Explanation
Modified duration = Macaulay duration / (1 + YTM) = 7.20 / 1.05 = 6.857, about 6.86. Multiplying by 1.05 gives 7.56, which reverses the adjustment.
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