Problem

A financial firm holds a bond in its investment portfolio whose duration is 13.5 years.  I...

A financial firm holds a bond in its investment portfolio whose duration is 13.5 years.  Its current market price is $950.  While market interest rates are currently at 7 percent for comparable quality securities, a decrease in interest rates to 6.75 percent is expected in the coming weeks.  What changes (in percentage terms) will this bond’s price experience if market interest rates change as anticipated?

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