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

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