Consider a Bond with a Duration of 7 Years Having

question 104

Multiple Choice

Consider a bond with a duration of 7 years having a yield to maturity of 7 percent, and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

• A) 3.62 percent
• B) 3.45 percent
• C) -3.38 percent
• D) 3.38 percent
• E) -3.62 percent

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Definitions:

Carrying Value

The recorded cost of an asset in a company's books, less any accumulated depreciation or amortization.

Face Value

The nominal value printed on a financial instrument, such as a bond or stock certificate, representing its worth as stated by the issuer.

Bond Interest Paid

The amount paid by the issuer of a bond as interest to the bondholders, usually expressed as a fixed percentage of the principal.

Discount

A reduction from the usual cost of something or the act of lowering the price.