If Interest Rates Increase by 20 Basis Points (I

question 2

Multiple Choice

If interest rates increase by 20 basis points (i.e., ΔR = 20 basis points) , use the duration approximation to determine the approximate price change for the Treasury note.

• A)$0.000.
• B)$0.2775 per $100 face value.
• C)$2.775 per $100 face value.
• D)$0.2672 per $100 face value.
• E)$2.672 per $100 face value. [Refer to: 9-95]

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Definitions:

Payback Calculation

A financial analysis method used to determine the time required to recoup the cost of an investment, based on the cash inflows from the investment.

Time Value

Time value refers to the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Money

A medium of exchange used to facilitate transactions for goods and services.

Net Present Value

A method used to evaluate an investment's profitability by calculating the present values of all cash inflows and outflows.