HI all,
the below is an excerpt from a Fixed Income online practice questions set.
How is the PV01 of the liabilities calculated?
Should it not be USD 500 mil * 13.1 / 10000?
Also, the label of “Macaulay Modified Duration” is kind of confusing - is there even such a thing? I though there is only either Macaulay Duration or Modified Duration.
Thanks,
Martin
PV of Liabilities × Modified Duration ÷ 10,000
No, there isn’t.
They mean modified duration.
THanks. Yes, I understand that part. But if you input the liability figures from the table to this equation, the output does not equal the PV01 that is calculated in the table (ie USD 684,276) - this is the part that confuses me.
It seems what they did was multiplying the PBO by the modified duration x (1+yield%), which would equal to the Macaulay Duration
500mio x 13.1 x (1+4.5%)/10000=684,475
it’s unclear to me why they would do that though…
