CFA Examination Level II You ran a regression of the yield of KC Company’s 10-year bond on the 10-year U.S. Treasury benchmark’s yield using month-end data for the past year. You found the following...

CFA Examination Level II

You ran a regression of the yield of KC Company’s 10-year bond on the 10-year U.S. Treasury benchmark’s yield using month-end data for the past year. You found the following result:

Yield_KC
= 0.54 + 1.22 Yield_Treasury

where Yield_KC
is the yield on the KC bond and Yield_Treasury
is the yield on the U.S. Treasury bond. The modified duration on the 10-year U.S. Treasury is 7.0 years, and modified duration on the KC bond is 6.93 years.

a. Calculate the percentage change in the price of the 10-year U.S. Treasury, assuming a 50-basispoint change in the yield on the 10-year U.S. Treasury.

b. Calculate the percentage change in the price of the KC bond, using the regression equation, assuming a 50-basis-point change in the yield on the 10-year U.S. Treasury.