Assume a Three-Year Bond Has a Duration of 4 $\$ 417.24$

question 17

Multiple Choice

Assume a three-year bond has a duration of 4.102 semi-annual compounding periods and a value of $105 991.21.Further,the yield on the bond instantaneously increases from 6.5% to 6.7%.What is the proportional decrease in the bond price?

• A) \( \$ 417.24 \)
• B) \( \$ 421.09 \)
• C) \( \$ 437.61 \)
• D) \( \$ 499.43 \)

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Definitions:

Price Elasticity

The measure of how much the quantity demanded or supplied of a good changes in response to a change in its price.

Price Doubles

A situation where the price of a good, service, or commodity increases to twice its previous level, affecting supply and demand dynamics.

Intensive Margin

The degree to which factors of production, such as labor, are utilized more intensely to increase output in the short term.

Consumption Changes

Variations in the amount and types of goods and services used by households over time.