- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 2. Macaulay, Modified and Effective Durations

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**CFA Practice Question**

What is the interest rate risk, in percentage price change, of a semi-annual-pay 9%, 15-year bond with an 8.5% yield if rates decrease by 50 and 75 basis points?

A. -4.00; -3.875%

B. -2.12%; -4.31

C. 4.28%; 6.51%

**Explanation:**Current price = 104.19. Full Valuation at -50 basis points = 108.65; +4.28%

Full Valuation at -75 basis points = 110.97; +6.51%

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**User Contributed Comments**
6

User |
Comment |
---|---|

Melle |
How do I get the current price of 104.19? |

xxxx |
use your calculator to calculate the bond price (PV) |

synner |
set I/Y= 4.25, pv=104.19 I/Y=(8.5-.5)/2=4, PV=108.65 I/Y=(8.5-.75)/2=3.875, PV=110.97 With PMT=4.5, FV=100, N=30 CPT PV |

dealsoutlook |
n = 15*2, i/y = (8.5/2) = 4.25, fv = 100, pmt = (.09/2)*100, cpt pv do the same and change interest rate to (8.5-.5)/2 and (8.5-.75)/2 for decrease in bp and cpt pv for each |

AkuK |
Answer C is the only one with positive % change. the Question asks for %P change when rates decrease (i.e. P go up). |

dream007 |
I agree that the answer is C without working it out. But the questions asked for percentage price change. what we seem to have here is nominal price change...am I missing something? |