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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 7.2. What is the approximate DV01 of the position?

The DV01 is about $3,600. DV01 is the dollar price change for a one basis point yield move, equal to market value times modified duration times 0.0001, so 5,000,000 × 7.2 × 0.0001 gives $3,600.

  1. A$360,000
  2. B$36,000
  3. C$3,600Correct
  4. D$500

Explanation

DV01 = market value × modified duration × 0.0001 = 5,000,000 × 7.2 × 0.0001 = $3,600. The $360,000 figure results from dividing by 100 (treating duration as a per-1% measure) instead of scaling to one basis point. The $36,000 figure uses 0.001, which is 10 basis points.

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