A(n) seven-year bond has a yield of 8% and a duration of 7.199 years. If the bon

Question

A(n) seven-year bond has a yield of 8% and a duration of 7.199 years. If the bond's yield changes by 25 basis points, what is the percentage change in the bond's price? (Input the value as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

*PLEASE SHOW WORK AND EXPLAIN*

A(n) seven-year bond has a yield of 8% and a duration of 7.199 years. If the bond's yield changes by 25 basis points, what is the percentage change in the bond's price? (Input the value as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Percentage change in price = - Modified duration * change in yield

Modified duration = Duration / (1 + yield) = 7.199 / 1.08 = 6.66574

=> Percentage change in price = - 6.66574 * .25% = -0.01667 = -1.667%

However, I cannot tell whether price increased or decreased because you just mentioned that the bond yield changes but not whether the yield increased or decreased.

If the bond yield increased by 25 basis points, price decreased by 1.667%.

If the bond yield decreased by 25 basis points, price increased by 1.667%.

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