RatedrillPrice change from modified duration
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A bond portfolio is worth $300,000 and has a modified duration of 2.6. Market yields rise by 100 basis points. Using the duration approximation, by how much does the portfolio's value change? Enter a loss as a negative number.
What this problem teaches
Prices move opposite to yields. The percentage change is about -2.6%; duration is a straight-line estimate, so it is slightly off for large yield moves (convexity).
A hint if you get stuck
ΔP ≈ -D(mod) × Δy × P. One basis point is 0.01 percentage points, so 50 bp = 0.0050.
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