Problem:
A bond that pays interest semiannually has a 6 percent promised yield and a price of $1,045. Annual interest rates are now projected to increase 50 basis points. The bond's duration is five years.
Required:
Question: What is the predicted new bond price after the interest rate change? (Watch your rounding.)
- $1,020.35
- $1,069.65
- $1,070.36
- $1,019.64
- None of the options presented
Note: Provide support for your rationale.