Consider a Bond That Pays Annually an 8% Coupon with 20

question 54

Multiple Choice

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The amount that the price of the bond will change if its yield to maturity increases from 5% to 7% is closest to:

• A)-$270.
• B)-$225.
• C)-$310.
• D)-$250.

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Definitions:

Compounded Monthly

This refers to the calculation and addition of interest to the principal sum of a loan or deposit on a monthly basis.

Equal Monthly Payments

Fixed payments made every month, as in a loan or mortgage, ensuring that the loan is paid off over a specified period.

Compounded Monthly

A method where interest earnings are calculated and added to the principal amount each month, allowing the interest to then earn interest in subsequent months.

Compounded Semi-annually

A method of calculating interest where the earned interest is added to the principal balance twice a year, affecting the total interest earned over time.