CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties
A bond portfolio has a modified duration of 5.0. Yields on all bonds in the portfolio rise by 20 bps in a parallel shift. Ignoring convexity, the portfolio value is most likely to:
The portfolio value would fall by about 1.0%. Price change is approximately minus modified duration times the yield change, so minus 5.0 times 0.20% equals minus 1.0%. Rising yields reduce bond prices, so a rise in value is the wrong direction.
- Afall by about 1.0%Correct
- Brise by about 1.0%
- Cfall by about 0.1%
Explanation
The percentage price change is approximately -ModDur x change in yield = -5.0 x 0.0020 = -1.0%. The portfolio therefore falls by about 1.0%. A 0.1% fall results from misplacing the decimal, and a rise has the wrong sign.
Did you get it right without looking?
One question tells you little. A timed set on Yield-Based Bond Duration Measures and Properties shows your real accuracy, how long you take and where you lose marks.
More Yield-Based Bond Duration Measures and Properties questions
- Two bonds have the same maturity and the same yield-to-maturity. Bond X is a zero-coupon bond and Bond Y pays a 5% annual coupon. Which stat…
- A 6% annual-pay bond is priced at par with a yield of 6%, and has a Macaulay duration of 4.47 years. If the yield rises to 8% with all else …
- An analyst computes portfolio duration as the weighted average of the durations of the individual bonds. The most significant limitation of …
- A bond is priced at 100.00. If yield rises 25 bps the price is 98.00 and if yield falls 25 bps the price is 102.10. The approximate convexit…
- Two bonds have the same maturity and the same yield-to-maturity. Bond X pays a 3% coupon and Bond Y pays a 7% coupon. Compared with Bond Y, …
- 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…