John owns a bond that has a modified duration of 5.29 and a yield to maturity of 6.1%. If interest rates increase by 50 basis points, the bond's price will change by ________.

Question

Quizplus · Accepted Answer

The bond's price will change by approximately -2.65%. This is calculated using the modified duration formula: ΔPrice ≈ -Duration × ΔYield. Here, ΔYield is 50 basis points or 0.50%, and the duration is 5.29. Thus, -5.29 × 0.50% = -2.645%, which rounds to -2.65%.

John Owns a Bond That Has a Modified Duration of 5.29