The correct answer is B (2.8). The formula for estimating the approximate percentage price change (duration) for a 100 basis point change in yield is:

$\text{Duration} = \frac{\text{Price if yield declines} - \text{Price if yield rises}}{2 \times \text{Initial price} \times \text{Change in yield (decimal)}}$

Substituting the given values:

$\text{Duration} = \frac{108.5 - 104}{2 \times 106 \times 0.0075} = \frac{4.5}{1.59} \approx 2.83 \text{ or } 2.8$

• A (2.1) is incorrect because it uses a 100 basis point change in yield instead of 75 basis points.
• C (3.0) is incorrect because it uses the bond's par value (100) instead of the market price (106) in the denominator.