Consider a bond with a duration of 8 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?
A)3.85%
B)3.45%
C)-4.02%
D)-3.45%
E)-3.85%

Question

Quizplus · Accepted Answer

The percentage change in the price of the bond can be estimated using the formula: Percentage change ≈ -Duration × Change in yield. Here, the change in yield is 0.50% or 0.005. Thus, the percentage change ≈ -8 × 0.005 = -0.04 or -4.00%. The closest option is -3.85%.

Consider a Bond with a Duration of 8 Years Having