You Own a Bond That Has a Duration of 6

question 12

Multiple Choice

You own a bond that has a duration of 6 years. Interest rates are currently 7% but you believe the Reserve Bank is about to increase interest rates by 25 basis points. Your predicted price change on this bond is ________.

• A)+1.40%
• B)-1.40%
• C)-2.51%
• D)+2.51%

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Definitions:

Business Combination

A transaction or event in which an acquirer gains control over one or more businesses, typically through merger, acquisition, or consolidation.

Fair Value

The price one would receive for offloading an asset or would pay to reassign a liability during a formal transaction with participants in the market at the time of valuation.

Consolidated Balance

Refers to the presentation of assets, liabilities, and equity in a single balance sheet that combines the financials of a parent company with its subsidiaries.