CFA Level I · CFA Level I Exam · Curve-Based and Empirical Fixed-Income Risk Measures
Which statement about key rate duration is most accurate?
Key rate duration measures a bond's price sensitivity to a change in the benchmark yield at one specific maturity, holding other maturities constant. It shows exposure to non-parallel curve shifts, while the sum of key rate durations approximates effective duration.
- AIt measures sensitivity to a parallel shift of the whole curve
- BIt measures price sensitivity to a change in one specific maturity point on the curveCorrect
- CIt is identical to Macaulay duration for any bond
Explanation
Key rate duration isolates the effect of a change in the benchmark yield at one maturity while holding other points constant. The sum of key rate durations approximates effective duration for a parallel shift. It is unrelated to Macaulay duration.
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