A Bond Has a Modified Duration of 7

question 96

Multiple Choice

A bond has a modified duration of 7.22 and a yield to maturity of 8.1%. If interest rates increase by 75 basis points, the bond's price will decrease by ________%.

• A)−.46
• B)−.54
• C)−4.60
• D)−5.42
• E)−6.18

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Definitions:

Ordinary General Annuity

An annuity where payments are made at the end of each period, such as monthly or annually, over a specified length of time.

Present Value

The contemporary worth of an expected future sum of money or flow of cash payments, accounting for a specific rate of return.

Periodic Interest Rate

The amount of interest charged or earned over a particular period of time, often expressed as a rate per month or quarter.

Compounded Annually

Interest calculation method where interest is added to the principal sum once per year, leading to an increase in the amount of subsequent interest.