9-66 Calculate the Modified Duration of a Two-Year Corporate Loan

question 24

Multiple Choice

9-66 Calculate the modified duration of a two-year corporate loan paying 6 percent interest annually.The $40,000,000 loan is 100 percent amortizing,and the current yield is 9 percent annually.

• A)2 years.
• B)1.91 years.
• C)1.94 years.
• D)1.49 years.
• E)1.36 years.

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Definitions:

Implicit Cost

The opportunity cost equal to what a firm must give up in order to use resources it already owns, without paying rent or purchasing them.

Economic Profits

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs.

Accountants

Professionals responsible for managing and auditing financial records, ensuring accuracy and compliance with legal requirements.

Short Run

Describes a period in which some factors of production or inputs are fixed, limiting the ability of a business to fully adjust to market changes.