Consider a bond with a duration of 6 years having a yield to maturity of 8 percent, and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?
A) 2.88 percent
B) 3.45 percent
C) -3.89 percent
D) -3.45 percent
E) -2.88 percent

Question

Quizplus · Accepted Answer

The percentage change in the price of the bond can be estimated using the formula: Percentage change in price ≈ -Duration × Change in yield. Here, Duration = 6 years, Change in yield = 0.50% = 0.005. Thus, the percentage change in price ≈ -6 × 0.005 = -0.03 or -3%. The closest option is -2.88 percent.

Consider a Bond with a Duration of 6 Years Having