Question: If interest rates fall from 6 percent to 5 percent
If interest rates fall from 6 percent to 5 percent, the price of the bond in the above problem will increase. Will the change in price (regardless of sign) be smaller or larger than in the above problem? Show how much by using the PV formula, Equation 6.8, and Equation 6.14. How does this conclusion relate to the interpretation of duration as an approximate elasticity measure?
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