A bond with a 9-year duration is worth $1,080.00 and its yield to maturity is 8%.If the yield to maturity falls to 7.84%,you would predict that the new value of the bond will be _________.

Question

Quizplus · Accepted Answer

The bond's price change can be estimated using the duration formula: Price change ≈ -Duration × (Change in yield). Here, the change in yield is -0.0016 (from 8% to 7.84%). The estimated price change is 9 × 0.0016 × $1,080 = $15.55. Adding this to the original price gives approximately $1,094.

A Bond with a 9-Year Duration Is Worth $1,080