Because of a change in the required rate of return from 11 percent to 13 percent, the bond price of a zero-coupon bond will fall from $1,000 to $860. Thus, the bond price elasticity for this bond is

Question

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The bond price elasticity can be calculated using the formula: Elasticity = (Percentage change in price) / (Percentage change in yield). Here, the percentage change in price = (($860 - $1000) / $1000) * 100 = -14%. The percentage change in yield = ((13% - 11%) / 11%) * 100 = 18.18%. Thus, elasticity = -14% / 18.18% = -0.77. The negative sign indicates that the bond price moves in the opposite direction of the yield change.

Because of a Change in the Required Rate of Return