CFA Level I · CFA Level I Exam · Introduction to Risk Management
A bond portfolio worth USD 50 million has a modified duration of 6.0 and is hedged by no instruments. Assuming a parallel yield shift, the portfolio value change if yields rise by 25 bps is closest to:
The portfolio falls about USD 0.75 million. Modified duration of 6.0 times a 0.25% yield rise gives a 1.5% decline, and 1.5% of USD 50 million is USD 0.75 million.
- A-USD 0.75 millionCorrect
- B-USD 1.50 million
- C-USD 3.00 million
Explanation
Percentage change ≈ -6.0 × 0.0025 = -1.5%. Times USD 50 million = -USD 0.75 million. Using 25 as a full percent (0.25 rather than 0.0025) would give -USD 75 million; applying 50 bps instead would give -USD 1.50 million.
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