- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 2. Macaulay, Modified and Effective Durations

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**CFA Practice Question**

An 8% annual coupon rate, semi-annual pay, 20-year corporate bond is priced to yield 9%. The Macaulay duration for this bond is 8.85 years. Given this information, the bond's modified duration is ______.

A. 8.12

B. 8.47

C. 8.51

**Explanation:**8.85/(1+9%/2)=8.47

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**User Contributed Comments**
14

User |
Comment |
---|---|

mbuechs |
Only with semi-annual coupon! |

Iyal |
I got it. Because semi-annual i/2 modified D = Maculay D / (1+i/2) |

ninaz |
I am using the same formula Iyal uses, but result I am getting is 8.51. ??? |

option |
You have to use current yield (9%) to calculate, not the coupon rate. |

mbuechs2 |
This assumes the US convention of semiannual coupon payments. |

chenchow |
Modified Duration = Macaulay Duration / (1+ (yield/# of periods per year)) |

danlan |
yield=YTM and not coupon rate |

shiva5555 |
I can't believe I got this question right. I am so passing this test. |

azramirza |
Why semiannual?? |

Jurrens |
azramirza: assume semiannual if not specified shiva5555: pride comes before the fall |

hoyleng |
8.85/(1+0.09/2) = 8.85/1.045 = 8.4689 |

bidisha |
Hey nothing wrong with a little optimism. I sure need more of it |

alles |
so you divide an annual measure (duration in years) for a measure that is semi-annual? doesn't make sense to me. |

warnggg |
I hate bonds |