Suppose that a zero coupon bond selling at $ 1,000 par has a duration of four years. If interest rates increase from 6 percent to 7 percent annually, the value of the bond will fall by what amount using Equation 6.14? Use semiannual compounding. Then, use the PV formula to determine the actual price of the bond at 7 percent. What is the difference? Why is there a difference?
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