The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. what happens to the price of the bond if the interest rate falls to 8 percent?

%DP=12.3% increment

Explanation:

The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. What happens to the price of the bond if the interest rate falls to 8 percent?

We go by the formula.

As the calculation in tables(on the internet), the duration of a ten-year 10% coupon  bond is 6.76 years.

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duration=6.76

di=change in interest=0.08-0.1

i=initial interest rate, 10%

Juxtaposing the parameters into the given equation

-6.76*(-0.18)/1.1

%DP=12.29

%DP=12.3% in approximation

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