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    Bond value and market interest rates

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    A bank added a bond to its portfolio. The bond has a duration of 12.3 years and cost $1109. Just after buying the bond, the bank discovered that the market interest rates are expected to rise from 8% to 8.75%. What is the expected change in the bonds value?

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    Solution Preview

    The proportional change in the price of a bond (delta P/P) = - {D/ (1+ YTM)} x delta y
    where delta ...

    Solution Summary

    Calculates the expected change in the bond's value after a change in the market interest rates using bond duration.