A bond has a YTM of 6.75%, a modified duration of 14.05 years, a duration of 15 years and a 20 year maturity. By what percentage will the bond's price change if market interest rates decrease by 0.75%?

Question

Quizplus · Accepted Answer

The bond's price will change by approximately +10.53 percent if market interest rates decrease by 0.75%. This is calculated using the modified duration, which measures the price sensitivity of a bond to a change in interest rates. The formula is: Price Change (%) = -Modified Duration * Change in Yield. Here, it's -14.05 * (-0.75%) = +10.53%.

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