A Bond Has a Modified Duration of 7

question 48

Multiple Choice

A bond has a modified duration of 7.22 and a yield to maturity of 8.9 percent. If interest rates increase by 75 basis points, the bond's price will decrease by _____ percent.

• A) -0.46
• B) -0.54
• C) -4.60
• D) -5.42
• E) -6.18

---

Definitions:

Overapplied

A condition where the manufacturing overhead allocated to products exceeds the actual manufacturing overhead costs incurred.

Underapplied

A situation in cost accounting where the allocated overhead costs are less than the actual overhead costs.

Predetermined Overhead Rate

The predetermined overhead rate is a rate used to allocate manufacturing overhead costs to products or job orders, based on estimated overhead costs and activity levels.

Variable Overhead Rate Variance

The difference between the actual variable overhead costs incurred and the standard cost allocated, indicating inefficiencies or cost control issues.