medium · FRM Part 1 Valuation and Risk Models
A bond has a Macaulay duration of 8.4 years and is priced to yield 5.0% with semiannual compounding.
What is the bond's modified duration, and what does it measure?
- Modified duration is 8.4 years; it measures the dollar value of a basis point.
- Modified duration is 8.82 years; it measures the time-weighted average of cash flows.
- Modified duration is 8.2 years; it measures the approximate percentage price change for a 1% move in the yield.
- Modified duration is 8.0 years; it measures the approximate percentage price change for a 100 basis point change in yield.
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