CFA Level 1: Bond Price Change Calculation

Bond Price Change Calculation

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Question

A bond has a yield of 10 percent and an effective duration of 7.5 years. If the market yield changes by 10 basis points, what is the change in the bond's price?

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A. B. C. D.

D

The formula for effective duration calculates the approximate change in price for a 100 basis point change. Here, we are asked to provide the approximate percentage change in the bond's price for a 10bp change. Ten basis points is 1/10th, or 0.10 of 100bp. Thus, the calculation is 0.10 * 7.50 = 0.750%.