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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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