# pq78 - Practice for Chapter 7 and 8 Chapter 7 Practice 1 a...

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Practice for Chapter 7 and 8 Chapter 7 Practice 1 a) Compute the duration of a 9% coupon 20-year option free bond by changing the yield down and up by 10 basis points. b) Suppose a 6% coupon 20-year option-free bond is selling at par value and therefore offering a yield of 6%. Compute the duration by changing the yield up and down by 10 basis points. Practice 2 Using the duration for the 6% coupon 20-year bond found in Part b of practice 1m answer the following questions: a) What is the approximate percentage price change if the interest rates increase by 10 basis points? b) Comment on the approximate compared to the actual price change given in exhibit 6 c) What is the approximate percentage price change if interest rates decrease by 10 basis points? d) Comment on the approximation compared to the actual price change as given in exhibit 6 e) What is the approximate percentage price change if interest rates increase by 200 basis points f) Comment on the approximation compared to the actual price change as given

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pq78 - Practice for Chapter 7 and 8 Chapter 7 Practice 1 a...

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