a. In Concept Check 16.1, you calculated the price and duration of a 2-year-maturity, 8% coupon bond making semiannual coupon payments when the market interest rate is 9%. Now suppose the interest rate increases to 9.05%. Calculate the new value of the bond and the percentage change in the bond’s price.

b. Calculate the percentage change in the bond’s price predicted by the duration formula in Equation 16.2 or 16.3. Compare this value to your answer for part (a). P-963