CFA Level I · CFA Level I Exam · Curve-Based and Empirical Fixed-Income Risk Measures
A bond portfolio has a market value of EUR 40 million and a modified duration of 5.5. Its basis point value (BPV) is closest to:
The basis point value is about EUR 22,000. It equals modified duration times 0.0001 times market value: 5.5 × 0.0001 × EUR 40,000,000. This is the approximate change in portfolio value for a one basis point change in yield.
- AEUR 22,000Correct
- BEUR 40,000
- CEUR 220,000
Explanation
BPV = ModDur × 0.0001 × market value = 5.5 × 0.0001 × 40,000,000 = EUR 22,000. EUR 220,000 results from a 10 bp shift error, and EUR 40,000 ignores duration.
Did you get it right without looking?
One question tells you little. A timed set on Curve-Based and Empirical Fixed-Income Risk Measures shows your real accuracy, how long you take and where you lose marks.
More Curve-Based and Empirical Fixed-Income Risk Measures questions
- An analyst compares a callable bond with an otherwise identical option-free bond. When market yields fall sharply, the effective convexity o…
- A bond is priced at 100.00. If the benchmark curve falls by 25 bps the bond's price is 101.40, and if the curve rises by 25 bps the price is…
- Effective convexity, rather than approximate convexity based on yield-to-maturity changes, is most appropriate for a bond with an embedded o…
- A bond's effective duration is estimated by shifting the benchmark yield curve up and down by the same amount and revaluing the bond. This m…
- A bond has key rate durations of 0.40 at the 2-year point, 1.10 at the 5-year point, and 3.50 at the 10-year point. The bond's effective dur…
- An analyst compares a callable bond with an otherwise identical option-free bond. When market yields fall sharply to well below the call-exe…