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

A bond has a modified duration of 4. If yields rise by 50 basis points, the approximate percentage change in the bond's price is:

The price falls by approximately 2%. Price change is roughly negative modified duration times the yield change: 4 × 0.50% = 2%, and because yields rise, the price declines. The sign is negative because bond prices and yields move inversely.

  1. AIncrease of 2%
  2. BDecrease of 2%Correct
  3. CDecrease of 4%
  4. DDecrease of 0.5%

Explanation

Price change ≈ -modified duration × change in yield = -4 × 0.50% = -2%. An increase is wrong in sign. A 4% fall uses a 1% yield change; 0.5% ignores duration.

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