A portfolio manager is assessing an option-free fixed-rate


A portfolio manager is assessing an option-free, fixed-rate bond’s interest rate risk using modified duration. The bond has a par value of 100, a term to maturity of 20 years, bears a coupon rate of 5% with coupon payments paid semiannually, and is currently priced at 78.6449% of par value.

1) What will be the bond’s estimated percent change in price using modified duration in response to a 75 basis point decrease in the bond’s yield to maturity?

2) What is the price value of a basis point (PVBP) for this bond?

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Financial Management: A portfolio manager is assessing an option-free fixed-rate
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