A bond has a Macaulay duration of 10.00 and is priced to yield 8.0​%. If interest rates go up so that the yield goes to 8.5%​, what will be the percentage change in the price of the​ bond? Now, if the yield on this bond goes down to 7.5​%, what will be the​ bond's percentage change in​ price? Comment on your findings.

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: The Basic Tools Of Finance
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A bond has a Macaulay duration of
10.00
and is priced to yield
8.0​%.
If interest rates go up so that the yield goes to
8.5%​,
what will be the percentage change in the price of the​ bond? Now, if the yield on this bond goes down to
7.5​%,
what will be the​ bond's percentage change in​ price? Comment on your findings.
If interest rates go up to
8.5​%,
the percentage change in the price of the bond is
nothing​%.
​(Round to two decimal​ places.)
If interest rates go down to
7.5​%,
the percentage change in the price of the bond is
nothing​%.
​(Round to two decimal​ places.)
Comment on your findings.  ​(Select the best answer​ below.)
 
 
A.
As interest rates​ decrease, the price of the bond decreases. As interest rates​ increase, the price of the bond increases.
 
B.
As interest rates increase or​ decrease, the price of the bond will always increase.
 
C.
As interest rates increase or​ decrease, the price of the bond remains the same.
 
D.
As interest rates​ increase, the price of the bond decreases. As interest rates​ decrease, the price of the bond increases.
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