What is ratio of the value change over the interest change

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A 10-year and a 1-year zero-bond both offer an interest rate of 8% per annum.

(a) How does an increase of 1 basis point in the prevailing interest rate change the value of the 1-year bond? (Use 5 decimals in your calculation.)

(b) How does an increase of 1 basis point in the prevailing interest rate change the value of the 10-year bond?

(c) What is the ratio of the value change over the interest change? In calculus, this would be called the derivative of the value with respect to interest rate changes. Which derivative is larger?

Reference no: EM131234388

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