Why is DV01 so much smaller than dollar duration if both are supposed to measure rate risk?

DV01 is not a different risk from dollar duration. It is the same first-order rate exposure shown on a practical basis-point scale.

Suppose Lakeshore Transit Finance 2032 has:

• full price 98.50
• modified duration 4.4

Dollar duration per 100 par is:

98.50 x 4.4 = 433.40

That means the bond changes by about 433.40 currency units for a full 1.00 change in yield. Because traders usually think in basis points, they divide by 10,000:

DV01 = 433.40 / 10,000 = 0.04334

So DV01 looks smaller only because the shock size is smaller.

On an exam, if the question asks for the one-basis-point P&L impact or hedge ratio, DV01 is usually the cleaner answer.