What Is the Percentage Change in a 5-Year Zero-Coupon Bond

question 18

Multiple Choice

What is the percentage change in a 5-year zero-coupon bond with a duration of 5 years,when interest rates increase from 9% to 10%?

• A)-1%
• B)-5.1%
• C)-4.7%
• D)-5%
• E)-4.5%

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Definitions:

Initial Value Method

An accounting method for investment accounting where the investment is recorded at its cost at the time of purchase, without subsequent adjustments for market changes.

Intra-entity Gross Profit

The profit recognized within a consolidated entity from transactions among its varying parts, not yet realized outside the entity.

Consolidation Worksheet

A document used in the preparation of consolidated financial statements which combines the financial statements of a parent company and its subsidiaries.

Initial Value Method

An accounting approach where investments are recorded at their purchase cost without subsequent adjustments for changes in market value.