Carter National Bank holds $15 million in government bonds having a duration of 12 years. If interest rates suddenly ris...

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Carter National Bank holds $15 million in government bonds having a duration of 12 years. If interest rates suddenly ris...

Carter National Bank holds $15 million in government bonds having a duration of 12 years. If interest rates suddenly rise from 6 percent to 7 percent, what percentage change should occur in the bonds’ market price?

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Answer 1

Answer #1

Formula to calculate percentage change in price
Percentage change in price	-duration*Change in r/(1+r)

r represents interest rate
Percentage change in price	-12*0.01/(1.06)
Percentage change in price	-11.32%

Thus, market price of bond would change by -11.32%.

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Answer 2

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