9-81 What is the percentage price change for the bond if interest rates decline 50 basis points from the original 5 percent?
A)-2.106 percent.
B)+2.579 percent.
C)+0.000 percent.
D)+3.739 percent.
E)+2.444 percent.

Question

Quizplus · Accepted Answer

To calculate the percentage price change, we use the modified duration formula:
Percentage price change = - (modified duration) x change in yield = - (4.34) x (-0.005) = 0.02179 or 2.179%
Since the yield declines, the price of the bond will increase by 2.179%, so the percentage price change is positive. The closest answer is B, which is +2.579%, so that is the best choice.

9-81 What Is the Percentage Price Change for the Bond