The formula for relating the percentage change in price to the bond duration is
A) △P/P = [-△i/(1 + i) × D].
B) △P/P = [△i/(1 + i) × D].
C) △P/P = [-△i * (1 + i) ÷ D].
D) △P/P = [-△i/(1 + i) ÷ D].

Question

The formula for relating the percentage change in price to the bond duration is 
A) △P/P = [-△i/(1 + i) × D]. 
B) △P/P = [△i/(1 + i) × D]. 
C) △P/P = [-△i * (1 + i) ÷ D]. 
D) △P/P = [-△i/(1 + i) ÷ D].

Quizplus · Accepted Answer

The formula for relating the percentage change in price to the bond duration is △P/P = [-△i/(1 + i) × D]. This formula shows that as the duration of the bond increases, the percentage change in price for a given change in interest rates will be greater.

The Formula for Relating the Percentage Change in Price to the Bond