Skip to content

NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

A PMS fixed income portfolio holds a bond with a modified duration of 4.5. If the market yield on the bond rises by 50 basis points, the approximate percentage change in its price is:

The bond's price falls by approximately 2.25%. Price change is approximately minus modified duration times the yield change, so -4.5 multiplied by 0.50% equals -2.25%. The sign is negative because yields rose, and 50 basis points equals 0.50%.

  1. A-2.25%Correct
  2. B+2.25%
  3. C-4.50%
  4. D-0.225%

Explanation

Approximate price change = -modified duration x change in yield = -4.5 x 0.50% = -2.25%. The sign is negative because yields rose. Using 4.5 x 1% ignores that 50 bps is 0.50%, giving the wrong -4.50%.

Did you get it right without looking?

One question tells you little. A timed set on Investing in Fixed Income Securities (NISM XXI-A) shows your real accuracy, how long you take and where you lose marks.

Practise Investing in Fixed Income Securities (NISM XXI-A)Free diagnostic mock

More Investing in Fixed Income Securities (NISM XXI-A) questions