CFA® Program exam: calculator tutorial for Modified Duration

The exams are around the corner – do you know your stuff? This series of posts in the month leading up to the exam will cover revision tips, summaries and must-knows for students to make sure they’re thoroughly prepared.

In this step-by-step tutorial, we walk you through how to obtain the Modified Duration value using a Texas Instrument BA II Plus financial calculator.

Sample Problem:

A bond pays 6% coupon payments, semi-annually. I

t has 10 years left to maturity and the current market rate is 6.84%.

Calculate the modified duration on the bond.

*Note:

In your BA II Plus Professional calculator dates are entered in the mm.ddyy format. It is useful to use an easy starting date, such as 01/01/2000 and add the time to maturity to it to determine the ending date. For example, in this problem we would need to enter the starting date of 01/01/2000 as 01.0100, and the ending date of 01/01/2010 (10 years later) as 01.0110.

Step-by-step:

[2nd] [9] (“BOND”)

Enter the ‘SDT’ (starting date) as 01.0100

[ENTER] [↓]

Enter the ‘CPN’ (coupon) as “6” (for 6%)

[ENTER] [↓]

Enter the ‘RDT’ (aka redemption date, ending date, maturity date) as 01.0110

[ENTER] [↓]

‘RV’ (redemption value) should be the future value (par value; i.e. 100)

[↓]

‘ACT’ should be blank

[↓]

‘2/Y’ represents payments per year – should be left alone unless payment are annual instead of semi-annual (to change the payment frequency to annual press [2nd] [ENTER] until ‘1/Y’ appears, then hit [ENTER])

[↓]

Enter the ‘YLD’ (yield) as “6.84” (for 6.84%)

[ENTER] [↓]

‘PRI’ should be zero

[↓]

‘AI’ should be zero

[↓]

‘DUR’ or ModDur is calculated for you!

In this problem, ModDur is approx. 7.33.

About the Author

Darren Degraaf, CFA, CPA, MBA, MAFM, PRM, , is the revision expert in AB Maximus' CFA® Program exam prep course. He is currently adjunct professor of the Sauder School of Business in the University of British Columbia and director of Instructional Management for the Stalla Review for the CFA Exams Division of DeVry University. Before an international career in CFA® Program exam prep, he worked in HSBC for almost 20 years.