a. In Concept Check 11.1, you calculated the price and duration of a three-year maturity, 8% coupon

Question:

a. In Concept Check 11.1, you calculated the price and duration of a three-year maturity, 8% coupon bond for an interest rate of 9%. Now suppose the interest rate increases to 9.05%. What is the new value of the bond and the percentage change in the bond’s price?

b. Calculate the percentage change in the bond’s price predicted by the duration formula in Equation 11.2 or 11.3. Compare this value to your answer for (a). P DX (1 + y] 1+ y (11.2)

P D* y (11.3)

Data from Concept Check 11.1:

Suppose the interest rate decreases to 9%. What will happen to the price and duration of each bond in Spreadsheet 11.1? SPREADSHEET 11.1 Calculation of the duration of two bonds using Excel spreadsheet excel Please visit us at