An investor holds a bond with a Macaulay Duration of 7 years. The bond's current clean price is $980, and its accrued interest is $10. If the yield to maturity increases by 100 basis points (1%), what is the approximate percentage change in the bond's clean price?

Question: An investor holds a bond with a Macaulay Duration of 7 years. The bond's current clean price is $980, and its accrued interest is $10. If the yield to maturity increases by 100 basis points (1%), what is the approximate percentage change in the bond's clean price?

Answer options:

• -7.14%
• -7.00% ✅ -6.93%
• +7.00%

Correct answer: -6.93%

Explanation: The approximate percentage change in bond price due to a yield change is calculated as -Modified Duration * Change in Yield. Modified Duration = Macaulay Duration / (1 + YTM/n). Assuming semi-annual compounding and a YTM of roughly 5% (from price and duration context), Modified Duration is approximately 7 / (1 + 0.05/2) = 6.829. So, -6.829 * 0.01 = -6.829%, closest to -6.93% given options; or, if using a simplified 1/(1+YTM) approximation for Mod Dur, -7 / (1.05) = -6.67%, -7 * 0.01 = -7%. Given the options, -6.93% is most plausible with a more precise calculation or ignoring settlement effects.