Question

A 20-year bond priced to have an annual effective yield of 10% has a Macaulay duration of 11. Immediately after the bond is priced, the market yield rate increases by 0.25%. The bond's approximate percentage price change, using a first-order Macaulay approximation, is X. Calculate X.

Answer 1

-2.50%

Step-by-step explanation:

Calculation for X

Using this formula

X=Change in price/0ld price*100

Let plug in the formula

X=-P(0.10)(11/1.10)(0.0025)/P(0.10)*100

X=-P(0.10)(10)(0.0025)/P(0.10)*100

X=-2.50%

Therefore X is -2.50%