Sign up  |  Log in

formula for money duration

What is the formula for money duration?

I’ve seen 2 different ways CFAI calculates it.

With exam day right around the corner, Schweser's Final Review products are designed to help you finish out your study plan and walk into the testing center feeling prepared and confident.

PVBP = $$$ x .0001 x MD

IT doesnt matter if you use .01 or .0001, as long as it is consistent in your calculations and consistent with the problem.

I saw a variation where they said

money duration = annualized modified duration * market value

so the .01 or whatever doesn’t matter?

foshizzle wrote:

I saw a variation where they said

money duration = annualized modified duration * market value

so the .01 or whatever doesn’t matter?

no sir it matters very much. 1BP = 0.01% = 0.0001. when calculating money duration (PVBP of entire portfolio), it is essential that you multiply the .01% to assess the change in value of the portfolio in case of a 1BP shift in yields.

I find this to be quite confusing.

In the mock AM 2018 they have one problem where the guideline answer state: Money duration = modified duration × market value

But shouldn’t dollar duration be (Modified duration x Market value) ÷ 100 ? The value displays how much the value change per 1 percentage change. Then to calculate BPV, you take dollar duration / 100 as there are 100 BPV for each percentage.

An investment in knowledge pays the best interest - Benjamin Franklin