# Calculate the effect of the change of bond price [closed]

I have the following question from Hull, problem 6.14:

A five-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year.

(c) Use the duration to calculate the effect on the bond’s price of a 0.2% decrease in its yield.

The solution is as follows:

Since, with the notation in the chapter \begin{align}\Delta B & = -BD\Delta y \qquad (1)\end{align} the effect on the bond’s price of a 0.2% decrease in its yield is: $$\86.80\times4.256\times 0.002 = 0.74$$

However the bonds price B is \$86.80, and the$\Delta y\$ indicates a change, where by notation a decrease is negative, and an increase is positive. So based from this, and using formula (1) shouldn't the equation be:

$$-\86.80 \times 4.256 \times(-0.002) = 0.74$$

Question:

Is this a mistake in the text book, or is my approach incorrect?

## 1 Answer

Highly off-topic, but you are correct. The book however is not wrong, the authors just canceled out the negatives to provide short solutions. The solutions tend to be rather brief if i remember correctly.