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FRM Part I · FRM Exam Part I · Applying Duration, Convexity, and DV01

A fund holds a bond position with a market value of $5,000,000 and a modified duration of 4.8. What is the approximate DV01 of the position?

The DV01 is $2,400. DV01 equals modified duration times market value times one basis point (0.0001), so 4.8 × $5,000,000 × 0.0001 gives the dollar price change for a one basis point move in yield.

  1. A$2,400Correct
  2. B$24,000
  3. C$240
  4. D$1,200

Explanation

DV01 = modified duration × market value × 0.0001 = 4.8 × 5,000,000 × 0.0001 = $2,400. The $24,000 option multiplies by 0.001, which treats a 10 bp move as 1 bp. The $240 option divides by an extra factor of ten, and $1,200 halves the result.

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