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A bond has a duration of 6 years and interest rates are currently 7% . The Fed is expected to increase interest rates by 24

A bond has adurationof6 yearsand interest rates are currently7%. TheFedis expected toincreaseinterest rates by24 basis points, use duration to determine the change in the bond price.

a) Write theformulafor the change in the bond priceusing duration.

b) Use the formula ina)todetermine thepercentagechangein the bond price due tothe interest rate increase.

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