Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities

Ms. Kavita Rao holds a 10-year government bond with a modified duration of 6. If market yields rise by 50 basis points, the approximate change in the bond's price is:

The bond price falls by about 3%. Price change is approximately negative modified duration multiplied by the yield change, so 6 times 0.50% equals 3%, with a negative sign because bond prices fall when yields rise.

  1. AIncrease of 3%
  2. BDecrease of 3%Correct
  3. CDecrease of 0.3%
  4. DDecrease of 12%

Explanation

Approximate price change = -modified duration x change in yield = -6 x 0.5% = -3%. The sign is negative because prices and yields move inversely. Increase of 3% has the wrong sign, and 12% wrongly treats 50 bp as 2%.

Did you get it right without looking?

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

Practise Investing in Fixed Income SecuritiesFree diagnostic mock

More Investing in Fixed Income Securities questions