Answer: $0.57.

The correct answer is **A** ($0.57). The value of a bond is calculated using the present value formula: ``` PV = [PMT / (1 + r)^1] + [PMT / (1 + r)^2] + ... + [(PMT + FV) / (1 + r)^N] ``` where: - PV = Present value (price of the bond) - PMT = Coupon payment per period - FV = Future value (par value of the bond) - r = Market discount rate per period - N = Number of periods to maturity **Calculation Steps:** 1. **Initial Yield:** Using the calculator inputs (N = 6, PMT = $2.5, FV = $100, PV = $108), the yield is 1.114% semiannually (2.228% annually). 2. **New Yield:** After a 100 bps decrease, the new yield is 0.614% semiannually. 3. **New Price:** With N = 4, PMT = $2.5, FV = $100, and r = 0.614%, the new price is $107.43. 4. **Change in Value:** $108.00 - $107.43 = $0.57. **Why Not B or C?** - **B** ($1.52) incorrectly fails to annualize the interest rate before computing the change. - **C** ($3.08) incorrectly uses the same time to maturity without adjusting for the passage of one year.

Author: LeetQuiz Editorial Team