A 12-year,8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years.If interest rates decline by 50 basis points,what will be the percent change in price for this bond?

Name: A 12-year,8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years.If interest rates decline by 50 basis points,what will be the percent change in price for this bond?
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Question

Quizplus · Accepted Answer

D_mₒd = 9.5/(1 + .12/2)= 9.5/1.06 = 8.96 years %∆P = -D_mₒd × ∆i = -(8.96)× (-50/100)= 4.48% (increase)

A 12-Year,8 Percent Bond with a YTM of 12 Percent