Calculate the duration

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Question - A 3-year 5% coupon bond with annual payments (face value = 100) currently trades for 100.

Calculate the duration (in years).

Now suppose that yields go up to by 100 basis points. Calculate the approximate dollar change in the price of the bond using duration.

Will the actual dollar change be bigger or smaller than the dollar change you computed in part (b). Please only answer with the word BIGGER or SMALLER.

In ONE word, what is the reason for the difference?

Reference no: EM132183973

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