Consider a Bond Selling at Par with Modified Duration of 12

question 72

Multiple Choice

Consider a bond selling at par with modified duration of 12 years and convexity of 265. A 1% decrease in yield would cause the price to increase by 12%, 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) 13.3%

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Definitions:

Institutional Buyers

Organizations that purchase goods and services in large volumes for operational purposes, not for individual consumption.

Purchasing Agents

Individuals or companies responsible for acquiring goods or services for their own use or for resale.

System

A set of interrelated components that work together to achieve a specific goal or function, organized within a framework or structure.

B₂C Marketing

Business-to-Consumer marketing, which involves selling products directly to consumers.