Which of the following statements about duration of a bond is least accurate? A) The dollar change in price is approximately equal to the product of the duration and the current value of the bond divided by 100. B) The duration of a floater is equal to the time to the next reset date. C) If a bond has an effective duration of 7.5, it means that a 1% change in rates will result in a 7.5% change in price.
a I know the other ones are accurate. Can some one explain why a is not accurate?/
Dollar Duration=the absolute value of (duration*the change in rates*the price of the bond) With that equation and looking at answer A, I would say that the statement given in A is the least accurate.
I said A also. But, The correct Answer is C. Because of convexity, it will be APPROXIMATELY a 7.5% change in price, not an actual 7.5% change in price. The readings are very explicit about this distinction. What a curveball from Schweser.
So option A is accurate? Boy, I tell you. I need to read over that whole FI section AGAIN!!