Phil owns a 7%, semiannual coupon bond that has a face value of $1,000 and matures in 16 years. The bond has a current yield to maturity of 7.1%. What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

Question

Quizplus · Accepted Answer

The percentage change in the bond's price can be estimated using the bond's duration. A 50 basis point decrease in interest rates will increase the bond's price by approximately 4.91%, given the bond's duration and convexity.

Phil Owns a 7%, Semiannual Coupon Bond That Has a Face