Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

Question: 1 / 660

How is the price movement of a bond fund calculated with a duration of 6.5 and an increase in rates of 1.5%?

6.5% increase

9.75% decline

The price movement of a bond fund, particularly in response to changes in interest rates, can be estimated using the concept of duration. Duration measures the sensitivity of a bond's price to changes in interest rates, expressed in years.

In this scenario, a duration of 6.5 indicates that for a 1% increase in interest rates, the price of the bond fund is expected to decrease by approximately 6.5%. When the rates increase by 1.5%, the calculation for the price decline would be as follows:

Price change ≈ - Duration × Change in Interest Rates

Price change ≈ - 6.5 × 1.5%

Price change ≈ -9.75%

This calculation implies that the bond fund's price is expected to decline by 9.75% in response to the 1.5% increase in rates, supporting the conclusion that a bond fund with a duration of 6.5 would experience a significant price drop under these conditions. Therefore, the correct answer is that the bond fund will decline by 9.75%.

Get further explanation with Examzify DeepDiveBeta

No change in price

1.5% increase

Next Question

Report this question

Download Chartered Retirement Planning Counselor (CRPC) Practice Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy