Skip to content

NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

A bond has a modified duration of 4.5. Market yields rise by 50 basis points. The bond is held in a client's portfolio at a market value of Rs 20,00,000. Approximately what is the change in its market value?

The market value falls by approximately Rs 45,000. A modified duration of 4.5 and a 0.50 percentage point rise in yield imply a price drop of about 2.25 percent, which on Rs 20,00,000 equals Rs 45,000.

  1. ADecrease of Rs 45,000Correct
  2. BIncrease of Rs 45,000
  3. CDecrease of Rs 4,50,000
  4. DDecrease of Rs 22,500

Explanation

Percentage price change = -modified duration x change in yield = -4.5 x 0.50% = -2.25%. Rs 20,00,000 x 2.25% = Rs 45,000 fall. Rs 4,50,000 results from using 5% instead of 0.5%, and Rs 22,500 comes from halving again.

Did you get it right without looking?

One question tells you little. A timed set on Investing in Fixed Income Securities (NISM XXI-A) shows your real accuracy, how long you take and where you lose marks.

Practise Investing in Fixed Income Securities (NISM XXI-A)Free diagnostic mock

More Investing in Fixed Income Securities (NISM XXI-A) questions