A Nine-Year Bond Has a Yield to Maturity of 10

question 45

Multiple Choice

A nine-year bond has a yield to maturity of 10% and a modified duration of 6.54 years. If the market yield changes by 50 basis points, the bond’s expected price change is

• A) 3.27%
• B) 3.66%
• C) 5.00%
• D) 6.54%

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Definitions:

Interest Computation

The process of calculating the amount of interest due on a loan or investment based on the principal amount, rate, and time.

Maturity Date

The specific date on which the principal amount of a loan, bond, or other financial instrument is due to be paid back in full.

Leap Years

Years that are divisible by 4 (and if it's a century year, it must be divisible by 400), adding an extra day, February 29, to the calendar to keep it synchronized with Earth's orbit around the Sun.

Leap Years

Years that are divisible by 4 (with the exception of years divisible by 100 but not by 400), and include an additional day in February.