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**CFA Practice Question**

A bond has 3 years to maturity, a coupon rate of 5% annually, coupons paid annually. The YTM is 4.5%. The Modified Duration of the bond is (use 1 bp change in your computations):

A. 2.89

B. 3.11

C. 2.73

**Explanation:**Duration = (V- - V+)/(V0 * 2 * dV), change the price of the bond by changing yield 1/100 of 1% in both directions to get V- and V+

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**User Contributed Comments**
5

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

chantal |
I get 2.73 on Modified Duration and 2.71 on effective duration. Anyone? |

JCopeland |
That is correct 2.73 for Modified. |

Sandar |
how u calculate modified duration |

andrewmorgan |
this is effective not modified |

harrybay |
So according to this question modified and effective is pretty much the same? |