Valid CFA-Level-I Dumps shared by ExamDiscuss.com for Helping Passing CFA-Level-I Exam! ExamDiscuss.com now offer the newest CFA-Level-I exam dumps, the ExamDiscuss.com CFA-Level-I exam questions have been updated and answers have been corrected get the newest ExamDiscuss.com CFA-Level-I dumps with Test Engine here:
Jackie Gold owned a bond that had a Modified duration of 19.400. If the bond had a coupon of 19.00 %, and a yield to maturity of 8.50 %, then what is the change in bond price given a change in yield of - 290 basis points?
Correct Answer: C
Candidates beware of extraneous information and the possible trap set for you! Modified duration estimates the percentage change in bond price with a change in yield and is a very simple computation. You do not need to make the Macaulay adjustment (i.e. (Macaulay duration) - (1+YTM/2)) since the modified duration is already provided. This calculation is very straight forward however, do not forget to adjust for the " - "sign at the beginning of the formula. Just remember that bond prices and interest rates move in an inverse manner. Consequently as interest rates decrease, bond prices decrease (and vice versa). The solution follows: The formula for a bond with a Modified duration is: % dP = - Modified Duration * di dP/P * 100 = - Dmod * di Where dP = change in price for the bond, - Dmod = the modified duration for the bond, di = the yield change in basis points divided by 100, P = beginning price for the bond % dP = -19.400 * -2.90 = 56.260%