CFA Level I · CFA Level I Exam · Curve-Based and Empirical Fixed-Income Risk Measures
A portfolio has a key rate duration of 4.0 at the 10-year point and zero at all other key rates. The 10-year benchmark yield falls by 25 bps while all other yields are unchanged. The portfolio's approximate percentage price change is closest to:
The portfolio gains about 1.00%. Price change is approximately minus the key rate duration times the yield change: -4.0 × (-0.25%) = +1.00%. The price rises because the 10-year yield falls, and only that key rate affects the portfolio.
- A-1.00%
- B+1.00%Correct
- C+4.00%
Explanation
Change = -KRD x change in yield = -4.0 x (-0.0025) = +0.0100, or +1.00%. The -1.00% option has the sign wrong; +4.00% ignores the size of the yield change.
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