The DV01 can be computed as Dmod × (0.0001) × value. If the CAD bond were a zero-coupon bond, its Macaulay duration would be 10 years. Assuming that the CAD bond is a coupon bond, its duration must be less than 10 years, and its modified duration would be less than 10 years, depending on prevailing market rates. Thus, the dollar duration for the bond in the question must be less than 10 × (0.0001) × $100,000,000 = $100,000. It is reasonable to assume that the modified duration of a 10-year coupon bond is around seven years, thus $70,000 is a reasonable estimate for the DV01 of the 10-year Canadian government bond. |
