If interest rates increase by 20 basis points, what is the approximate change in the market price using the duration approximation?
A)-$7.985
B)-$7.941
C)-$3.990
D)+$3.990
E)+$7.949 [Refer to: 9-102]

Question

Quizplus · Accepted Answer

The duration approximation formula for estimating the change in bond price due to interest rate changes is: ΔP ≈ -D * Δy * P, where ΔP is the change in price, D is the duration, Δy is the change in yield (in decimal form), and P is the initial price. A 20 basis point increase in interest rates (0.20%) would lead to a decrease in bond price, hence a negative value. Without the specific values for duration and initial price, the exact calculation can't be provided, but the correct answer must reflect a decrease in price, which is option A, -$7.985.

If Interest Rates Increase by 20 Basis Points, What Is