A non-callable bond has an effective duration of 7.26. Which of the following is the closest to the approximate price change of the bond with a 25 basis point increase in rates using duration? A. -0.018%. B. -1.820%. C. 1.820%.
The formula for the percentage price change is: –(duration)(Δy). Therefore, the estimated percentage price change using duration is: –(7.26)(0.25%) = –1.82%.
