An Annual Payment Bond Has a 9 Percent Required Return

question 17

Multiple Choice

An annual payment bond has a 9 percent required return. Interest rates are projected to fall 25 basis points. The bond's duration is 12 years. What is the predicted price change?

• A)−2.75 percent
• B)33.33 percent
• C)1.95 percent
• D)−1.95 percent
• E)2.75 percent

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Definitions:

Historic Rate

The exchange rate used to convert foreign currency transactions to the reporting currency at the date of the transaction, for accounting purposes.

Income Statement Items

Elements found in the income statement, including revenues, expenses, gains, and losses, which together determine the net income of a company.

Average Rate

The mean amount at which something can be bought or sold, calculated over a specified period or under certain conditions.

Functional Currency

The primary currency used by a business or unit in its financial statements, reflecting the main economic environment in which it operates.