- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 46. Understanding Fixed-Income Risk and Return
- Subject 2. Macaulay, Modified and Effective Durations

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**CFA Practice Question**

Consider the following portfolios comprised of 2-year, 5-year and 10-year zero-coupon bonds. D(n) is the key rate duration for the n-year part of the yield curve.

If the 2-year key rate shifts up 10 basis points and the 10-year rate shifts down 10 basis points, the value of the portfolio will change by ______.

Correct Answer: 0.2%

Change in portfolio's value due to 2-year key rate change: 0.5 x (-10/100) = -0.05%.

Change in portfolio's value due to 10-year key rate change: 2.5 x (10/100) = 0.25%.

The total change in portfolio value is an increase of 0.2%.

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**User Contributed Comments**
3

User |
Comment |
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Teeto |
D(2) is 5, how comes its 0.5x(-10/100) ? D(10) is not present in the table. If D(3) is used instead of (D10) (why?) then total value considering the first line does not change. Chances are I got the question wrong. |

sarasyed5 |
see the values in the bottom most row @teeto |

davidt87 |
Teeto D(1) corresponds to the 2-year, D(2) to the 5-yr... etc. |