CFA Practice Question

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CFA Practice Question

A bond is currently trading at 98.5 per 100 par, thus yielding 6.21%. It is estimated that the bond price will be 99.4 if the benchmark yield is lowered by 25 basis points and 97.8 if benchmark yield is raised by 25 basis points. What is this bond's effective duration?
A. 1.62
B. 3.25
C. 6.12
Explanation: DE = (P- - P+)/(2P0 Δr) = (99.4 - 97.8)/(2 * 98.5 * 0.0025) = 3.25

User Contributed Comments 3

User Comment
rana1970 then how it's different from modified duration?
bidisha The formula is different
gill15 Its not any different. Modified duration and effective duration are the same when there are NO embedded options
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