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Problem: One 12 years maturity bond, with the following information: Par value: $1,000 Duration: 8 years Current price: $800 Current market Interest Rate: 6% Question:

Problem:

One 12 years maturity bond, with the following information:

  • Par value: $1,000
  • Duration: 8 years
  • Current price: $800
  • Current market Interest Rate: 6%

Question:

(a) By usingduration,what would be the predicted price change (in dollar amount) if the interest rate decreases to 5%?

(b) By usingduration,what would be the predicted price change (in dollar amount) if the interest rate increases to 8%?

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