DD = Value x modified Duration x 0.01
That is for 1%. But We can also write it as 1BPS which would be 0.0001
Which is the correct method? Especially if they give you the options in MCQ?
Following from this - I got the following wrong…
Imagine we have a bond with Price of 102.36. Each holding is of size 1m par value. The Modified Duration is 3.7
What is the DD?
I said, 1m x 102.36 = 102,360,000 x 3.7 x 0.0001 = 37,873
The answer says it is 3,783,000 (so multiplied by 0.01)
Money duration is times 0.01, i.e. 1% change in rates.
PV01 (PVBP) is times 0.0001, i.e. 0.01% change in rates.
So you calculated PVBP in this question while it asked for money duration.
How interesting, I did not realize there was any difference!
This question specifically asked for the Money Duration. I thought Money Duration was the same as Dollar Duration = PVBP=DO1
Very confused.
Yeah so just divide by 100 again for PVBP. There was some earlier discussion on this see https://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91365320 towards the bottom.
For MCQ it shouldn’t matter because you see the overall number, for AM it might cost you 1 point for wrong scaling.
Just to make terminology clear:
Money duration = dollar duration
PVBP = DV01/PV01
Thanks Moonborne, that link is the exact question I was referring to.
You’ve helped alot!