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Price hit from a yield jump

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A bond has a modified duration of $6.5$ . Its yield rises by $20$ basis points. Using the first-order rule that the percentage price change equals minus the duration times the yield change in percent, by what percentage does the price fall? Give the size of the fall.

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Hint

Express the yield change in percent first.

Solution

$20$ basis points is $0.20%$ .
The percentage price change is $- 6.5 \times 0.20%$ .
$6.5 \times 0.2 = 1.3$ .
The price falls by $1.3$ percent.

Answer: $1.3$

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