- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 7. Yield Curve Factor Models

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**CFA Practice Question**

An investor constructs a portfolio by investing 75% of her money into a 10-year bond, which has a key rate duration of 4.3, and 25% of her money into a 30-year bond, which has a key rate duration of 16.8. If the 10-year interest rate declines by 100 basis points, while the 30-year interest rate increases by 100 basis points, what will be the impact on the portfolio value?

A. The portfolio value will increase by 0.975%.

B. The portfolio value will decline by 0.975%.

C. The portfolio value will increase by 7.425%.

**Explanation:**%change in portfolio value = 0.75[(-4.3) (-0.01)] + 0.25[(-16.8)(0.01)] = -0.000975 or 0.975%.

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**User Contributed Comments**
1

User |
Comment |
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JChewL2 |
remember to make key rate negative |