Answer to Question #253197 in Civil and Environmental Engineering for nato

Question

The price of a 10-year bond can decline by approximately 9% if interest rates rise by 1% point. To
illustrate this, suppose you own a 10-year U.S. Treasury bond that has a bond rate of 2% per year. How
much money will you lose if the value of the bond today is $10,000 (face value of the bond) and the
yield increases to 3% within the next few months?

Answer 1

If the value of bond today is $10,000

lets say next few month will be 6 months

bond rate= 2% per year so it will be 1% in 6 months

Yield increase= 3% (let say for 2 months)

so 9% will be for 6 months

$=\frac{(10,000\times9)}{100}$

$=\$900$

so the total loss will be $900 from the bond value price.