A bond has a modified duration of 7.22 and a yield to maturity of 8.1%. If interest rates increase by 75 basis points, the bond's price will decrease by ________%.

Question

Quizplus · Accepted Answer

The formula for calculating the percentage change in price of a bond due to changes in yield is:

Percentage Change in Price = - Modified Duration x Change in Yield

= -7.22 x 0.0075 (75 basis points = 0.0075)

= -0.05415 or -5.42%

Therefore, the answer is (D) -5.42%.

A Bond Has a Modified Duration of 7