A Bond Has a Macaulay's Duration of 10

question 7

Multiple Choice

A bond has a Macaulay's duration of 10.7 years. If rates fall from 7% to 6%, the bonds price will:

• A) increase by approximately 1%.
• B) decrease by approximately 1%.
• C) increase by approximately 10%.
• D) decrease by approximately 10%.
• E) Not enough information is given to answer the question.

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Definitions:

Market

A place or platform where buyers and sellers meet to trade goods, services, or financial instruments.

Lower-of-cost-or-market

An accounting principle that requires inventory to be recorded at the lower of its original cost or current market value, ensuring assets are not overstated on the balance sheet.

Balance Sheet

A documentation of a company’s financial position, showcasing assets, liabilities, and the equity held by shareholders at a particular instance.

Lower-of-cost-or-market

An accounting principle that valuables inventory at the lower cost between the original purchase cost and its current market price.