The required rate of return on a certain bond changes from 12 percent to 8 percent, causing the price of the bond to change from $900 to $1,100. The bond price elasticity of this bond is

Question

The required rate of return on a certain bond changes from 12 percent to 8 percent, causing the price of the bond to change from $900 to $1,100. The bond price elasticity of this bond is ​

Quizplus · Accepted Answer

The bond price elasticity can be calculated using the formula: Elasticity = (Percentage change in price) / (Percentage change in yield) = [(1100 - 900) / 900] / [(8 - 12) / 12] = (200 / 900) / (-4 / 12) = 0.2222 / -0.3333 = -0.67.

The Required Rate of Return on a Certain Bond Changes