# Calculate The Change In Price Of Coupon Bond With Change In Interest Rate

Question

Consider a five-year, 8 percent annual coupon bond selling at par of \$1,000.

1. What is the duration of this bond?
a. 5 years.
b. 4.31 years.
c. 3.96 years.
d. 5.07 years.
e. Not enough information to answer.

2. If interest rates increase by 20 basis points, what is the approximate change in the market price using the duration approximation?
a. –\$7.98.
b. –\$7.94.
c. –\$3.99.
d. +\$3.99.
e. –\$7.94.

3. Using present value bond valuation techniques, calculate the exact price of the bond after the interest rate increase of 20 basis points.
a. \$1,007.94.
b. \$992.02.
c. \$992.06.
d. \$996.01.
e. \$1003.99.

Summary

These short questions belong to Finance and the questions deal with a 5 year, 8% coupon bond selling at \$1000. The duration of the bond, the price of the bond based on the increase in interest rates needs to be calculated.

Total Word Count 97

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