Price of the Bond at A14% Yield to Maturity =

Essay

Price of the bond at a14% yield to maturity = 941.73 So the percentage change in the price of the bond is: ($941.73 - $914.35)/$914.35 = 2.99%
Duration = $3083.98/$914.35 = 3.37 years.
Present value of the bond at a 14% yield to maturity:
$\begin{array}{|c|r|c|}\hline\text { Period }& \begin{array}{c} \text {Expected} \\\text {Cash Flows }\\\text {from Security}\end{array} & \begin{array}{c} \text {Present} \\\text {value }\\\text {of expected} \\\text {Cash Flows} \\\text {(at 15 \% } \\\text {Rate} \\\text {of Discount)}\end{array} \\\hline 1 & 120 & 105.26 \\\hline 2 & 120 & 92.34 \\\hline 3 & 120 & 81.00 \\\hline 4 & 120 & 71.05 \\\hline 4 & 1,000 & 592.08 \\\hline\end{array}$

Calculate the value of duration for a 4-year, $1,000 par value U.S. Government bond purchased today at a yield to maturity of 15%. The bond's coupon rate is 12 percent and it pays interest once a year at year's end. Now suppose the market interest rate on comparable securities falls to 14 percent. What percentage change in this bond's price will result?