Question

A nine-year bond has a yield of 10% and a duration of 7.213 years. If the...

A nine-year bond has a yield of 10% and a duration of 7.213 years. If the bond's yield increases by 60 basis points, what is the percentage change in the bond's price as predicted by the duration formula? (Input the value as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

The bond's price increased by/ decreased by what percentage?.

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Answer #1

The relationship between bond price and Yield to maturity is an inverse relationship. That is when YTM increases bond price decreases and when YTM decreases Bond price increases.

Percentage Change in bond price is calculated below using following formula:

Change in bond price = - Duration × Change in yield × 100

     = - 7.213 × 0.60% × 100

       = 4.3278%

Percentage Change in Bond Price is Approx. -4.3278%.

Here since Yield of bond increase by 0.60% so price of bond decrease by 4.3278%.

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