CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties
A bond is priced at par with a modified duration of 8.00. Its yield rises by 50 bps, and the analyst uses only duration to estimate the price change. The estimated percentage price change is closest to:
The estimated price change is about -4.00%. Multiplying modified duration of 8.00 by the 0.50% yield rise gives 4.00%, and the price falls because yields rise. The inverse relationship between price and yield sets the negative sign.
- A-4.00%Correct
- B-0.40%
- C+4.00%
Explanation
Percentage price change ≈ -ModDur × ΔYield = -8.00 × 0.005 = -0.04, or -4.00%. A yield increase lowers the price, so the sign is negative; -0.40% misplaces the decimal.
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