You own a 6.5%, semiannual coupon bond that matures in 12 years. The par value is $1,000 and the current yield to maturity is 6.4%. What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 25 basis points?

Question

Quizplus · Accepted Answer

The correct answer is A because the percentage change in the price of a bond is inversely proportional to the change in yield to maturity. In this case, the yield to maturity increases by 25 basis points, which is 0.25%. The percentage change in the price of the bond is therefore -0.25% * (12 / 6.5) = -2.04%.

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