Skip to learning content

IBBC CAPITAL ACADEMY / 2027

Modified duration, money sensitivity and basis points

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Explain relative sensitivity using mechanisms and limitations.
  • Explain currency sensitivity using mechanisms and limitations.
  • Explain structural drivers using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Relative sensitivity

Modified duration approximates the percentage price sensitivity to a small yield change; express the yield change as a decimal, not as a percentage-point integer.

For periodic compounding, modified duration equals Macaulay duration divided by 1+y/m; units and compounding must be compatible.

Currency sensitivity

Money duration equals modified duration times market value; multiplying by 0.0001 estimates the absolute price value of one basis point.

Longer maturity generally raises interest-rate exposure for otherwise similar conventional bonds, while higher coupon brings more value earlier and usually lowers duration.

Structural drivers

At lower yields, conventional fixed-cash-flow bonds generally have greater duration, all else equal; compare identical structures before attributing a difference.

Duration is a local linear approximation and can miss large yield moves or changing cash flows; supplement it with convexity and scenario repricing.

Formula and assumptions

ΔP/P≈−DmodΔy; PVBP≈Dmod×market value×10⁻⁴

Original applied case: Modified duration, money sensitivity and basis points

  1. Modified duration 4.5 and market value 2 million, no cash-flow optionality.
  2. PVBP≈4.5×2,000,000×0.0001=900 currency units.
  3. A one-basis-point yield rise implies about 900 loss locally; the positive PVBP is an absolute sensitivity.

Errors to catch

  • Do not assume: A 100-basis-point change is the decimal 1.
  • Do not assume: Modified and Macaulay duration are always identical.
  • Do not assume: PVBP uses a yield change of 0.01.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.