a) A zero coupon bond selling for $1,000 today has a duration of 4 years...
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a) A zero coupon bond selling for $1,000 today has a duration of 4 years (par value is equal to $1,266.77). If interest rates increase from 6% to 7% (compounded semi-annually). the value of the bond will fall by what amount using Equation 6.14? What will the new price be if you use your calculator's financial functions? Why do your answers differ? b) If interest rates fall from 6% to 5%, the price of the bond will increase. Will the change in price (regardless of sign) be smaller or larger than in (a) above? Show how much by using your financial calculator and Equation 6.14. Remember, interest is compounded semi-annually
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