Duration Formula

There’s duration formula at Reading 63 (Vol. 5 p 270). I know this topic will be extended at Reading 69, however, just one thing not so clear about this particular formula. Calculate the approximate % price change of the bond for a 100 bps change in yield. (P if yields decline - P if yields rise) / 2 x Initial P x Yield change in decimal eg. P if yields decline = 98; P if yields rise = 88; Initial P = 90; yield change 25pbs Given the data, it’s easy to apply them to the formula to calculate the duration. My confusion here is I don’t understand why the book shows the yield change in decimal as 0.0025? Why 10^4/25? I thought should be 0.25 In addition, I noticed some formulas carry (60-9) or (64-5) etc but some did not such as this one. Does it mean the one without it is less important? Will it be tested?

25 bps = 0.25% so 0.25% = .0025 in decimal form.

Oh, just realized 100 pbs = 1% Now I got it. Thx.

Read Schweser it is much less confusing

Thanks for the tip. I observed that at this forum many people are big believers of Schweser and some still emphasize CFAI books. I personally think CFAI books lay a solid ground for people who do not have much finace background - although I admit these books are not that easy to read sometimes. I have all Schweser material - just hope to have time to go there later on. I seem to dwell too long on one subject. Got to speed up.

Hyang, I just passed L1 (non academic financial background although work in finance) by using Schweser first and then CFAI afterwards (only on topics that i felt i was weaker on, otherwise just Schweser). This helped me as i found that attacking the CFAI books with little prior knowledge made things a real drag…especially FSA topics such as DTA/DTL, tax etc. Cheers, JT