CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

An investor purchases a 10-year, 8% annual coupon bond with exactly seven years remaining until maturity. The purchase price is equal to par value. The investor's investment horizon is five years. The modified duration of the bond is 5.5 years. The duration gap at the time of purchase is closest to ______.
A. 0.5
B. 0.94
C. 2
Explanation: The Macaulay duration is modified duration x 1.08 = 5.94. The duration gap is 5.94 - 5 = 0.94.

User Contributed Comments 5

User Comment
berns23 Please explain where the 5 comes from. thnx
prahlad the investment horizon
moupad123 How do we know that 8% is the Cr and not the I/Y
cschulz316 because it's at par?
Sagarsan88 A very good qstn
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