Answer: more than 200 basis points.

## Explanation This question tests the concept of **convexity** in bond pricing. For option-free bonds, the price-yield relationship is convex, not linear. This means: 1. **Price increases are greater than price decreases** for equal yield changes in opposite directions 2. **The price-yield curve is curved downward** (convex to the origin) ### Key Insight: - When yields decrease by 200 bps, price increases by 5% - Due to convexity, when yields increase by the same 200 bps, the price decrease will be **less than 5%** - To get a 5% price decrease, yields must increase by **more than 200 bps** ### Mathematical Explanation: The convex price-yield relationship means: - For a given yield decrease Δy, price increase = ΔP₁ - For the same yield increase Δy, price decrease = ΔP₂, where |ΔP₂| < |ΔP₁| - To achieve |ΔP₂| = |ΔP₁|, you need a larger yield increase ### Example with Numbers: If decreasing yields by 200 bps gives +5% price change, then: - Increasing yields by 200 bps might give only -4.5% price change (due to convexity) - To get -5% price change, you need to increase yields by something like 220-230 bps **Therefore, the correct answer is C: more than 200 basis points.**

Author: LeetQuiz .