The Modified Duration of a Bond Portfolio Worth $1 Million

question 20

Multiple Choice

The modified duration of a bond portfolio worth $1 million is 5 years.By approximately how much does the value of the portfolio change if all yields increase by 5 basis points?

• A) Increase of $2,500
• B) Decrease of $2,500
• C) Increase of $25,000
• D) Decrease of $25,000

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Definitions:

Conditioned Stimulus

An initially neutral stimulus that, after being associated with an unconditioned stimulus, comes to trigger a conditioned response.

Operant Conditioning

A learning process in which the strength of a behavior is modified by reinforcement or punishment.

Edward Thorndike

An American psychologist known for his work in comparative psychology and the law of effect.

Ivan Pavlov

Ivan Pavlov was a Russian physiologist known for his work in classical conditioning, demonstrating how dogs could learn to associate a neutral stimulus (such as a bell) with an automatic behavior (like salivating) when paired with food.