Par-Value-Bond F Has a Modified Duration of 9

question 34

Multiple Choice

Par-value-bond F has a modified duration of 9. Which one of the following statements regarding the bond is true?

• A) If the market yield increases by 1%, the bond's price will decrease by $90.
• B) If the market yield increases by 1%, the bond's price will increase by $90.
• C) If the market yield increases by 1%, the bond's price will decrease by $60.
• D) If the market yield decreases by 1%, the bond's price will increase by $60.

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Definitions:

CAPM

The Capital Asset Pricing Model, a financial theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Firm-Specific Factors

Unique characteristics or circumstances affecting a company that can influence its stock's performance, unrelated to the overall market movements.

Common Macroeconomic Factor

Economic variables that affect a broad segment of the economy and consequently can influence the performance and value of financial investments.

Uncertainty

The degree of variability in investment returns, often associated with the lack of predictability in markets and future events.