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CFA Level I · CFA Level I Exam · Yield-Based Bond Convexity and Portfolio Properties

Two bonds have the same modified duration of 7.0, but Bond P has a full market value of GBP 1 million and Bond Q has GBP 3 million. Which statement about their money durations and PVBPs is most likely correct?

Bond Q has the larger money duration and PVBP. Money duration equals modified duration times market value, and PVBP scales with it, so with equal modified durations of 7.0 the GBP 3 million position is three times as sensitive in currency terms as the GBP 1 million position.

  1. ABond Q has a larger money duration and larger PVBP than Bond P.Correct
  2. BBond P and Bond Q have equal money durations because their modified durations are equal.
  3. CBond P has a larger PVBP than Bond Q because its price is lower.

Explanation

Money duration = modified duration × market value, so Bond Q's is three times Bond P's (21 million vs 7 million). PVBP is money duration × 0.0001, so it is also three times larger. Equal modified durations do not imply equal money durations.

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