M=1000 Coupon Rate=5% (paid annually) n=3 years r=4.75%

B0=1006.84 t=1ntCFt1+rt=2879.49

1. If the market rate of interest increases to 5%, then the percent change in the bonds price is______.

a. -0.68%

b. 0.68%

c. 0.72%

d. -0.72%

e. 0.00%

2. If the market rate of interest decreases to 4.5%, then the percent change in the bonds price is______.

a. -0.68%

b. 0.68%

c. 0.72%

d. -0.72%

e. 0.00%

3. The answers to 15 and 16 are evidence that

I. Duration is an elasticity

II. Duration is a point statistic

III. Duration defines the positive relationship between changes in interest rates and bond prices

a. I, II, and III

b. III only

c. I and II

d. I and III

e. II only