A 9%, 16-year bond has a yield to maturity of 9% and duration of 7.25 years. If the market yield changes by 15 basis points, how much change will there be in the bond's price?

Question

Quizplus · Accepted Answer

The bond's price change can be estimated using the duration formula: Price Change ≈ -Duration × Change in Yield. Here, the duration is 7.25 years and the change in yield is 0.15% (15 basis points). Thus, the price change is approximately -7.25 × 0.0015 = -0.010875 or -1.0875%, which is closest to 1.00%.

A 9%, 16-Year Bond Has a Yield to Maturity of 9