A 20-Year Zero Coupon Bond with a Face Value of $1,000

question 18

Multiple Choice

A 20-year zero coupon bond with a face value of $1,000 is currently selling for $214.55 and has a market rate of interest of 8%. Using the bond's modified duration, what is the approximate change in the price of the bond if interest rates rise to 9%?

• A) Increase of $39.73
• B) Increase of $18.52
• C) Decrease of $39.73
• D) Decrease of $18.52
• E) Not enough information is given to answer the question.

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Definitions:

Prefix

A morpheme added to the beginning of a word to alter its meaning or create a new word.

Iris

The colored part of the eye surrounding the pupil, responsible for controlling the diameter and size of the pupil, thus the amount of light reaching the retina.

Pupil

The opening in the center of the iris of the eye that adjusts size to regulate the amount of light entering the eye.

Enucleation

The surgical removal of an organ or tumor, often used to refer to the removal of the eyeball without damaging surrounding tissues.