What is the percentage price change for the bond if interest rates decline 50 basis points from the original 5 percent?
A)-2.106 percent.
B)+2.579 percent.
C)+0.000 percent.
D)+3.739 percent.
E)+2.444 percent. [Refer to: 9-83]

Question

Quizplus · Accepted Answer

Using the bond price formula, the bond price would increase if interest rates decline. The percentage price change can be calculated as follows:

Percentage price change = (New bond price - Old bond price) / Old bond price
= [PV(5.5%, 10 years, $1000) - PV(5%, 10 years, $1000)] / PV(5%, 10 years, $1000)
= [$1,218.80 - $1,187.05] / $1,187.05
= 0.026 or 2.579%

Therefore, the answer is B.

What Is the Percentage Price Change for the Bond If