Question: As part of your answer to problem 2 you computed

As part of your answer to problem 2, you computed the price of the bond [column (4)]. This is the same as the PV of cash flows in column (4).
a. Recompute the price of a bond based on a 11 percent discount rate (market rate of interest).
b. What is the percentage change in the price of the bond as interest rates decline by 2 percent from 13 percent to 11 percent?
c. Approximate this same value by multiplying the duration computed in problem 2 times the change in interest rates (2 percent). The answer in part c should come reasonably close to the answer in part b. However, they will not be exactly the same.

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  • CreatedSeptember 21, 2015
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