The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. What happens to the price
1 answer:
Answer:
%DP=12.3% increment
Explanation:
The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. What happens to the price of the bond if the interest rate falls to 8 percent?
We go by the formula.
As the calculation in tables(on the internet), the duration of a ten-year 10% coupon bond is 6.76 years.
......................................................................1
duration=6.76
di=change in interest=0.08-0.1
i=initial interest rate, 10%
Juxtaposing the parameters into the given equation
-6.76*(-0.18)/1.1
%DP=12.29
%DP=12.3% in approximation
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