I totally should know how to do this but I cant remember.
They find the key rate duration for the one year rate change by 100BPS – Sensitivity of the portfolio to theat shift is 1/(300*0.01) = .33333
I dont know where that came from – Forgot — Then they do the same for D5 an D10 but they dont show the calculations so that confused me as well.
Any help is appreciated. Dont want to look thru my CFA level 1 notees…
Because the effective duration of the 1-year zero is 1 year (assuming continuous compounding), the price change of a $100 zero given a 1% change in the 1-year rate is 1 × 0.01 × $100 = $1. So the 1-year key rate duration of the portfolio is:
ΔP/(PΔy)
= $1 / ($300 × 0.01)
= 0.3333 years
Similarly, the effective duration of the 5-year zero is 5 years, its price change for a 1% change in the 5-year rate is $5, and the 5-year key rate duration is:
ΔP/(PΔy)
= $5 / ($300 × 0.01)
= 1.6667 years
The 10-year key rate duration is:
ΔP/(PΔy)
= $10 / ($300 × 0.01)
= 3.3333 years
Thank you soo much
My pleasure.