This morning, Marty bought a 4% coupon bond at par value. The bond pays semi-annual interest and has twenty years to maturity. By what percentage will the price of Marty's bond change if
Market interest rates rise by 1.5% tonight?

Question

Quizplus · Accepted Answer

When market interest rates rise, bond prices fall. The bond's duration and the change in interest rates can be used to estimate the price change. A 1.5% increase in rates significantly impacts a long-term bond like this, resulting in an approximate 18.06% decrease in price.

This Morning, Marty Bought a 4% Coupon Bond at Par