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 thisbondis

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The bond price elasticity is calculated as the percentage change in bond price divided by the percentage change in required rate of return. In this case, the bond price falls from $1,000 to $860, a decrease of $140 or 14%. The required rate of return increases from 11% to 13%, an increase of 2%. Therefore, the bond price elasticity is -14% / 2% = -7.

Because of a Change in the Required Rate of Return