Consider a Bond Selling at Par with Modified Duration of 10.6

question 5

Multiple Choice

Consider a bond selling at par with modified duration of 10.6 years and convexity of 210. A 2% decrease in yield would cause the price to increase by 21.2% according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?

• A) 21.2%
• B) 25.4%
• C) 17.0%
• D) 10.6%

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Definitions:

Survival Hike

An outdoor adventure aimed at testing or improving the skills necessary to survive in wilderness conditions.

Personal Injury

Physical or psychological harm to a person resulting from the negligence, recklessness, or intentional misconduct of another party.

Express Warranty

A clearly stated guarantee by a seller about the condition, quality, or performance of a product or service.

Basis of the Bargain

Refers to the fundamental expectations or promises that constitute the foundation for the agreement between contracting parties.