A bond has a modified duration of 5.4 years, and a yield to maturity 11.6 percent. If the yield-to-maturity instantly decreases to 11%, the bond's price will increase by

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Quizplus · Accepted Answer

The bond's price change can be estimated using the formula: Price Change ≈ -Modified Duration × Change in Yield. Here, the change in yield is -0.6% (11.6% - 11%). So, Price Change ≈ -5.4 × (-0.006) = 0.0324 or 3.24%.

A Bond Has a Modified Duration of 5