Canadian Securities Course (CSC) Practice Exam · Question
An investor holds a bond with a Macaulay Duration of 7 years. If market interest rates unexpectedly increase by 100 basis points (1%), what is the approximate percentage change in the bond's price?
Macaulay Duration measures a bond's interest rate sensitivity. An approximate percentage change in bond price can be estimated as -Duration * Change in Yield. I
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Question: An investor holds a bond with a Macaulay Duration of 7 years. If market interest rates unexpectedly increase by 100 basis points (1%), what is the approximate percentage change in the bond's price?
Answer options:
- +7.0% ✅ -7.0%
- +0.7%
- -0.7%
Correct answer: -7.0%
Explanation: Macaulay Duration measures a bond's interest rate sensitivity. An approximate percentage change in bond price can be estimated as -Duration * Change in Yield. In this case, -7 * 0.01 = -0.07 or -7.0%.
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