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FRM Part I · FRM Exam Part I · Applying Duration, Convexity, and DV01

Which statement about DV01 is most accurate for a standard fixed-rate bond without embedded options?

DV01 measures the dollar price change per one basis point yield change, and it is generally larger for longer-maturity bonds with the same coupon and price because their duration is higher. It is linear and does not capture convexity for large moves.

  1. ADV01 is the dollar price change for a one basis point change in yield and is generally larger for a longer-maturity bond with the same coupon and price.Correct
  2. BDV01 is the percentage price change for a one percent change in yield and is the same as modified duration.
  3. CDV01 rises as maturity shortens because the bond approaches par value.
  4. DDV01 captures the full price change for large yield moves because it includes convexity.

Explanation

DV01 is a dollar measure per basis point; longer maturity raises duration and hence DV01 for similar coupon and price. It is not a percentage measure, it falls toward zero as maturity approaches, and it is a linear measure that ignores convexity.

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