Question

A bond has a duration of 7.5 years. Its current market price is $1,125. Interest rates in the market are 7 percent today. It has been forecasted that interest rates will rise to 9 percent over the next couple of weeks. How will the bond's price change in percentage terms?

A. The bond's price will rise by 2 percent.

B. The bond's price will fall by 2 percent.

C. The bond's price will fall by 14.02 percent.

D. The bond's price will rise by 14.02 percent.

E. The bond's price will not change.

Answer

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