I know know that there are many threads on Money duration , PVBP and similar but there is also A LOT of confusion due to the fact the CFAI and providers uses different calculation each time.
I just got wrong a question in the Wiley mock because they use Modified Duration as a percentage, no idea why, but that got me wrong an easy question.
Would someone clarify the proper notation to use in the ACTUAL CFA EXAM?
What worked for me is knowing that Money Duration = market value x modified duration
And With PVBP yo want to take that sensitivity to (per 1 basis point), so you have to divide money duration into 10,000
PVBP = money duration/10,000
PVBP is basically the market value change for a change in 1bp in the yield curve
Yes.
I’m curious, what if both modified duration and effective duration are provided. Which one to use?
Effective duration.
Easy way for me to keep it straight: duration is a % measure (even when it’s not presented as a %), so that’s one BPS (.01). So get it into BPV, it’s another .01. You get get to BPV by dividing by 10,000 or multiply by (.01)^2. Same result.
@avannoord I have never considered duration as % and, to be honest, I don’t think anyone in the finance industry does.
Duration isn’t a percentage.
The units on (every type of) duration is years.
However, I suspect that what @avannoord means is that modified and effective duration relate a percentage change in YTM to a percentage change in portfolio value.