CFA Level I · CFA Level I Exam · Interest Rate Risk and Return
A bond portfolio manager wants to compare the interest rate sensitivity of two bonds in currency terms rather than percentage terms. The measure that best serves this purpose is the:
The price value of a basis point is the best choice because it expresses the change in a bond's price in currency units for a one basis point change in yield. Macaulay duration is measured in years and convexity captures curvature, so neither gives a currency sensitivity.
- Aprice value of a basis pointCorrect
- Beffective convexity
- CMacaulay duration
Explanation
The price value of a basis point (PVBP) is the change in a bond's full price, in currency units, for a one basis point change in yield. Macaulay duration is a time measure in years, and convexity describes the curvature of the price-yield relationship; neither gives a currency change.
Did you get it right without looking?
One question tells you little. A timed set on Interest Rate Risk and Return shows your real accuracy, how long you take and where you lose marks.
More Interest Rate Risk and Return questions
- Two option-free bonds have the same modified duration and yield. Bond X has higher convexity than Bond Y. An analyst expecting a large, unce…
- For an option-free bond, the relationship between its price and its yield-to-maturity is most accurately described as:
- Two option-free bonds have the same maturity and the same yield to maturity, but Bond X has a 3% coupon and Bond Y has a 7% coupon. For a gi…
- An investor buys a fixed-rate bond with a Macaulay duration of 4.2 years and a planned holding period of 6 years. Immediately after purchase…
- Which statement about the Macaulay duration of a bond relative to an investor's horizon is most accurate?
- An investor buys a three-year, 5% annual-coupon bond at par (100) and plans to sell it after two years. The first coupon is reinvested at 4%…