Answer: -10.02%
Explanation:
We'll use the Excel calculator for this and this will go thus:
The bond price when interest is 7% will be:
Rate = 7%/2 = 0.035
NPER = 7 × 2 = 14
PMT = 8%/2 × 1000 = 40
FV = 1000
Slotting in the Excel calculator will give a value of 1054.6026
The bond price when interest is 2% will be:
Rate = 9%/2 = 0.045
NPER = 7 × 2 = 14
PMT = 8%/2 × 1000 = 40
FV = 1000
Slotting in the Excel calculator will give a value of 948.8859
The Percentage change in bond price will be:
= (-948.89 - 1054.60) / 1054.60 × 100
= -10.02%
