9-104 Calculate the percentage change in this bond's price if interest rates on comparable risk securities increase to 11 percent.Use the duration valuation equation.
A)+4.25 percent.
B)-4.25 percent.
C)+8.58 percent.
D)-3.93 percent.
E)-3.84 percent.

Question

Quizplus · Accepted Answer

The duration valuation equation is:% Change in Bond Price = -Duration * % Change in Interest RatesIn this case, the duration is 8.58 years and the interest rate change is 2% (from 9% to 11%). Therefore, the percentage change in bond price is:% Change in Bond Price = -8.58 * 2% = -17.16%The correct answer is E) -3.84 percent.

9-104 Calculate the Percentage Change in This Bond's Price If