- 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
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
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 |