- 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**

What is the modified duration on a noncallable bond with a Macaulay duration of eight years, a yield to maturity of 7%, and quarterly coupon payments?

A. 8.09

B. 7.93

C. 7.86

**Explanation:**Modified duration is equal to (Macaulay duration) / [1 + (current yield to maturity / number of payments in a year)]. In this question, the modified duration is 8 / [1 + (0.07/4)] = 7.86.

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**User Contributed Comments**
6

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

Aimy |
Eight years means Macalay duration is 8? |

TheRoon |
Yep! |

dwadd |
Copied right from the LOS: Modified Duration = Macaulay Duration / (1 + yield/k) where k is the number of periods, or payments per, year, and yield is the yield to maturity of the bond. For level 1 exam, you don't need to memorize this equation. |

jpducros |
note that k is the number of period per year, not the number of periods over the bond period. |

belebala |
isn't modified duration calculation out of scope of Level 1? |

tomalot |
Not for 2015 anyways, click on the LOS button for details |