17-64 What is the impact of a 50 basis point increase in interest rates on the net asset value of an open?end bond mutual fund holding a seven year,$100 million par value 7 percent annual coupon bond? The fund has 10 million shares.

Question

Quizplus · Accepted Answer

A 50 basis point increase in interest rates will decrease the bond's price due to the inverse relationship between interest rates and bond prices. The decrease in the bond's price will lead to a decrease in the net asset value (NAV) of the mutual fund. The decrease per share is calculated by determining the change in the bond's price due to the interest rate increase and dividing it by the number of shares.

17-64 What Is the Impact of a 50 Basis Point