A bond has a Macaulay duration of 10.00 and is priced to yield 8.0%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to 7.5%, what will be the bond's percentage change in price? Comment on your findings.
A bond has a Macaulay duration of 10.00 and is priced to yield 8.0%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to 7.5%, what will be the bond's percentage change in price? Comment on your findings.
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 3SQP
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Question
A bond has a Macaulay duration of
10.00
and is priced to yield
8.0%.
If interest rates go up so that the yield goes to
8.5%,
what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to
7.5%,
what will be the bond's percentage change in price? Comment on your findings.If interest rates go up to
8.5%,
the percentage change in the price of the bond is
nothing%.
(Round to two decimal places.)If interest rates go down to
7.5%,
the percentage change in the price of the bond is
nothing%.
(Round to two decimal places.)Comment on your findings. (Select the best answer below.)
As interest rates decrease, the price of the bond decreases. As interest rates increase, the price of the bond increases.
As interest rates increase or decrease, the price of the bond will always increase.
As interest rates increase or decrease, the price of the bond remains the same.
As interest rates increase, the price of the bond decreases. As interest rates decrease, the price of the bond increases.
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