The value of a $1,000 bond with an 8% yield-to-maturity and duration of 4 years would decline in value by how much if interest rates rose 2%?
A) $37
B) $74
C) $80
D) $100
E) none of the above

Question

Quizplus · Accepted Answer

The bond's price change can be estimated using the formula: Price Change ≈ -Duration × Change in Yield × Initial Price. Here, Price Change ≈ -4 × 0.02 × $1,000 = -$80. However, the closest option to this calculation is $74, considering approximation and rounding.

The Value of a $1,000 Bond with an 8% Yield-To-Maturity