Answer-first summary for fast verification
Answer: 9.57%
**Explanation:** The correct answer is **B (9.57%)**. The percentage change in the bond's price can be estimated using the modified duration, which is calculated as: \[ \text{Modified Duration} = \frac{\text{Macaulay Duration}}{1 + \text{YTM}} = \frac{10.0}{1.045} = 9.5694 \] For a 100 basis point decrease in yield, the percentage price change is: \[ \% \Delta P = -\text{Modified Duration} \times \Delta YTM = -9.5694 \times (-1\%) = 9.5694\% \approx 9.57\% \] - **Option A (9.43%)** is incorrect because it uses the coupon rate instead of the yield to maturity to calculate the modified duration. - **Option C (10.00%)** is incorrect because it directly uses the Macaulay duration without adjusting for the yield to maturity.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
An analyst gathers the following information about an annual-pay bond: Coupon rate: 6.0% Yield to maturity: 4.5% Macaulay duration: 10.0 If the yield to maturity decreases by 100 basis points, the expected percentage change in the bond's price is closest to:
A
9.43%
B
9.57%
C
10.00%