Skip to content

NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

A 10-year bond has a modified duration of 5. If the market yield rises by 0.50 percentage points (50 basis points), the approximate percentage change in the bond's price is:

The bond price falls by about 2.5%. Price change is approximately negative modified duration times the yield change, so minus 5 multiplied by 0.50 percent gives minus 2.5 percent. A rise in yield reduces the price.

  1. AIncrease of 2.5%
  2. BDecrease of 2.5%Correct
  3. CDecrease of 5.0%
  4. DDecrease of 0.25%

Explanation

Approximate price change = -modified duration x change in yield = -5 x 0.50% = -2.5%. An increase of 2.5% has the wrong sign. A 5% fall ignores the size of the yield change.

Did you get it right without looking?

One question tells you little. A timed set on Investing in Fixed Income Securities (NISM XXI-A) shows your real accuracy, how long you take and where you lose marks.

Practise Investing in Fixed Income Securities (NISM XXI-A)Free diagnostic mock

More Investing in Fixed Income Securities (NISM XXI-A) questions