Par-Value-Bond GE Has a Modified Duration of 11

question 37

Multiple Choice

Par-value-bond GE has a modified duration of 11. 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 $55.
• B) If the market yield increases by 1%, the bond's price will increase by $55.
• C) If the market yield increases by 1%, the bond's price will decrease by $110.
• D) If the market yield increases by 1%, the bond's price will increase by $110.

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Definitions:

Efficient Market Hypothesis

A theory that suggests all known information is already reflected in stock prices; therefore, it is impossible to consistently achieve higher returns than the overall market.

Nonzero Alphas

Refers to the active return on an investment, indicating performance that deviates from the expected risk-return trade-off.

Neglected-firm Effect

A phenomenon where lesser-known, smaller companies may outperform larger companies because they receive less attention from analysts.

January Effect

A seasonal increase in stock market prices that typically occurs during the month of January, often attributed to the buying of stocks that were sold at the end of the previous year for tax purposes.