A $1,000 six-year Eurobond has an 8 percent coupon,is selling at par,and contracts to make annual payments of interest.The duration of this bond is 4.99 years.What will be the new price using the duration model if interest rates increase to 8.5 percent?

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Quizplus · Accepted Answer

Modified Duration 11efb86a_d75b_8cbb_9137_7ddb13b0215c_TB1314_00 The duration model estimates the price change as: Price change = -Duration * (Change in yield / (1 + Initial yield)). Here, the price change = -4.99 * (0.005 / 1.08) * 1000 = -23.10. New price = 1000 - 23.10 = 976.90.

A $1,000 Six-Year Eurobond Has an 8 Percent Coupon,is Selling