You own a bond that has a duration of 6 years. Interest rates are currently 7%, but you believe the Fed is about to increase interest rates by 25 basis points. Your predicted price change on this bond is ________.

Name: You own a bond that has a duration of 6 years. Interest rates are currently 7%, but you believe the Fed is about to increase interest rates by 25 basis points. Your predicted price change on this bond is ________.
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Question

Quizplus · Accepted Answer

D* = 6/1.07 = 5.61
ΔP/P = −D*(Δy) = −5.61(0.25%) = −1.4%

You Own a Bond That Has a Duration of 6