9-78 What is the percentage price change for the bond if interest rates increase 50 basis points from the original 6 percent?
A)-0.1033 percent.
B)-0.4766 percent.
C)-0.4695 percent.
D)0.0000 percent.
E)-0.2907 percent.

Question

Quizplus · Accepted Answer

We need to calculate the percentage price change for a bond when interest rates increase. The formula for percentage price change is:
Percentage price change = -duration x change in yield

Here, the duration of the bond is not provided. Therefore, we can use the modified duration formula to estimate the percentage price change:

Modified duration = duration/(1 + yield) = duration/(1.06)
Change in yield = 0.50%
Therefore, the percentage price change = -modified duration x change in yield
Percentage price change = -[duration/(1.06)] x 0.005 = -[duration/212] = -0.4695%

Hence, the correct answer is C.

9-78 What Is the Percentage Price Change for the Bond