What is the percentage change in a 7-year zero-coupon bond with a duration of 7 years,when interest rates increase from 6% to 7%?

Question

Quizplus · Accepted Answer

The percentage change in the price of a bond is approximately equal to the negative of the duration times the change in interest rates. Here, the duration is 7 years, and the change in interest rates is 1% (from 6% to 7%). Thus, the percentage change is approximately -7 * 0.01 = -0.07 or -7%. However, since the bond is a zero-coupon bond, the actual calculation results in a slightly smaller percentage change, which is approximately -6.4%.

What Is the Percentage Change in a 7-Year Zero-Coupon Bond