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 CFAI online practice test Derivatives 3 of 7 (Lehigh) 
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Joined: 01 Mar 2013
Posts: 10
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Does anyone know why in question 2 of the CFAI online practice test the duration used from exhibit 2 is -3.625 in the bond modification formula and not one of the other durations provided? I don’t understand the logic here (I got the question right, but only because using the other durations did not provide an answer that was available in the multiple choice)
Everything else makes sense:
MDur of Target = 3 (given in text of problem)
MDur of Bond Portfolio = 5 (given in exhibit 1)
Bond Portfolio Value = 20,000,000 (given in exhibit 1)
NP = 20,000,000 * (3 - 5) / -3.625 => 11,030,000
Any help would be greatly appreciated. Thank you in advance!


08 Jul 2015
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