A Twenty-Year Note for $1000

question 67

Multiple Choice

A twenty-year note for $1000.00 bearing interest at 9% compounded monthly is discounted at 5% compounded quarterly four years and six months before maturity. Find the proceeds of the note.

• A) $6009.15
• B) $4805.10
• C) $133.07
• D) $4800.65
• E) $4741.93

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Definitions:

Duration Matching

Duration matching is an investment strategy used to minimize the interest rate risk by matching the duration of assets and liabilities, ensuring changes affect both sides similarly.

Yield Curve

A graph showing the relationship between bond yields and their maturity dates, commonly used to predict economic changes.

Price Volatility

Refers to the degree of variation in the price of a financial instrument over time, indicating the risk or uncertainty of its value change.

Coupon Bond

A debt security that pays interest to the holder on a regular basis until its maturity, when the principal is also repaid.