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All main topics / Finance & Investment / Derivatives / Derivatives
The modified duration of a bond portfolio worth $1 million is 5 years. By approximately how much does the value of the portfolio change if all yields increase by 5 basis points?
A.Increase of  $2,500
B.Decrease of $2,500
C.Increase of  $25,000
D.Decrease of $25,000
Answer: B

When yields increase bond prices decrease. The proportional decrease is the modified duration times the yield increase. In this case, it is 5×0.0005=0.0025. The decrease is therefore 0.0025×1,000,000 or $2,500.
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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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