An Open-End Bond Mutual Fund Is Holding a Three-Year, $1

question 5

Multiple Choice

An open-end bond mutual fund is holding a three-year, $1 million face value 5 percent annual coupon bond selling at par.What is the impact on the total asset value of the fund of a 1 percent decrease in interest rates?

• A)A decrease of $10,000.
• B)An increase of $10,000.
• C)A decrease of $26,730.
• D)An increase of $27,751.
• E)The answer depends upon the number of mutual funds shares outstanding.

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