A nine-year bond has a yield-to-maturity of 10% and a modified duration of 6.54 years. If the market yield changes by 50 basis points, the bond's expected price change is:

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Quizplus · Accepted Answer

The expected price change of a bond due to a change in yield can be estimated using the formula: Price Change = -Modified Duration * Change in Yield. Here, the modified duration is 6.54 years, and the change in yield is 50 basis points or 0.50%. Thus, the expected price change is -6.54 * 0.005 = -0.0327 or -3.27%.

A Nine-Year Bond Has a Yield-To-Maturity of 10% and a Modified