Assume That the Modified Duration of a Bond Is 2

question 14

Multiple Choice

Assume that the modified duration of a bond is 2.45 years and that the potential adverse move in yield is 16.5 basis points.What is the bond's price volatility (round to two decimals) ?

• A)2.45 * 0.00165 = 0.40%
• B)-2.45 * 0.00165 = -0.40%
• C)2.45 * 0.0165 = 4.04%
• D)-2.45 * 0.0165 = -4.04%

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Definitions:

Real Exchange Rate

The rate at which two currencies can be exchanged, adjusted for inflation, reflecting the actual purchasing power of one currency over another.

Arbitraging

The practice of buying and selling the same asset in different markets to take advantage of differing prices for the same asset.

Foreign Goods

Products or services that are produced outside one's own country and imported for domestic consumption.

Purchasing-power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to determine the relative value of the currencies.