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**CFA Practice Question**

Bonds of Dover Manufacturing are selling at yield of 5.78%. The bonds carry a coupon of 4.5%, payable annually, and have a maturity of 10 years. If the yields rise by 25 basis points, what is the projected percentage change in the price of the bond?

A. -1.90%

B. -1.94%

C. 1.94%

**Explanation:**Current bond price, using a financial calculator: FV = 100; N = 10; PMT = 4.50; I/Y = 5.78; CPT PV = 90.48

After an increase of 25 bp, new yield = 5.78 + 0.25 = 6.03. New bond price: FV = 100; N = 10; PMT = 4.50; I/Y = 6.03; CPT PV = 88.76

Percentage change in price = (88.76 / 90.48) - 1 = -1.90%

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**User Contributed Comments**
6

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

jackwez |
in time crunch always remember your rules... as interest rates go up the bond price will come down... |

copus |
this was a gift. all the question required was plugging numbers into the calculator and getting the percentage change in price. I hate these financial calculators. Would be much easier to do it on a normal calculator. |

cindywang9 |
why is it not adding 0.0025 since it's 25 basis points? |

GBolt93 |
because on a financial calculator you input rates as whole percentages not ratios. So it's 0.0025*100=0.25 |

MrFortei |
Thanks for this clarification @GBolt93 |

will080912 |
I thought I have to use the modified duration, but |