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CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties

A portfolio manager holds an annual-pay bond with a Macaulay duration of 6.20 and a yield-to-maturity of 4.0%. Midway between coupon dates, Macaulay duration is 6.20 at settlement. Using modified duration, the approximate percentage price change for a 25 bp yield increase is closest to:

The approximate price change is about -1.49%. Modified duration equals 6.20 divided by 1.04, or 5.96, and multiplying by the 0.25% yield increase gives a decline of roughly 1.49%. Using Macaulay duration directly overstates the decline.

  1. A-1.49%Correct
  2. B-1.55%
  3. C-1.61%

Explanation

Modified duration = 6.20 / 1.04 = 5.962. Price change ≈ -5.962 × 0.0025 = -1.49%. Using Macaulay duration directly gives -1.55%, and multiplying by 1.04 gives -1.61%.

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