If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would ________ in price by approximately ________.

Question

Quizplus · Accepted Answer

The bond would decrease in price by approximately 7.8%. This is because the bond's price and interest rates move in opposite directions, and the percentage change in price can be estimated using the bond's duration and the change in interest rates. The formula for the approximate percentage change in price is: Duration * Change in interest rate (in decimal form). Here, it would be 8 * (-0.01) = -0.08, or -8%, which is approximately -7.8%.

If Interest Rates Increase from 3% to 4%, a $100,000