Question

Consider a 10 year bond with face value $1,000 thatpays a 6.8% coupon semi-annually and has...

Consider a 10 year bond with face value $1,000 thatpays a 6.8% coupon semi-annually and has a yield-to-maturity of 8.4%. What is the approximate percentage change in the price of bond if interest ratesin the economy areexpected to decreaseby 0.60% peryear?Submit your answer as a percentage and round to two decimal places. (Hint: What is the expected price of the bond before and after the change in interest rates?)

(1) Describe and interpret the assumptions related to the problem.

(2) Apply the appropriate mathematical model to solve the problem.

(3) Calculate the correct solution to the problem.

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