A bond with a 6 year duration will have a 15% price decrease if the yield curve shifts upward. A bond with a 10 year duration should have an approximate price decrease of

Question

Quizplus · Accepted Answer

The approximate price decrease of a bond with a 10 year duration can be calculated using the duration rule, which states that for every 1% increase in interest rates, the approximate decrease in price will be equal to the duration of the bond multiplied by the 1% change in rates. So, for a 10 year bond with a duration of 10, a 1% increase in rates would result in a price decrease of approximately 10%. Therefore, a 2.5% increase in rates (which is equivalent to a 25 basis point increase) would result in an approximate price decrease of 2.5 x 10 = 25%. The closest answer choice is D, which is the correct answer.

A Bond with a 6 Year Duration Will Have a 15