Asked by
Rania Ebrahim
on Nov 04, 2024
Verified
Par-value-bond F has a modified duration of 9. Which one of the following statements regarding the bond is true?
A) If the market yield increases by 1%, the bond's price will decrease by $90.
B) If the market yield increases by 1%, the bond's price will increase by $90.
C) If the market yield increases by 1%, the bond's price will decrease by $60.
D) If the market yield decreases by 1%, the bond's price will increase by $60.
Modified Duration
A formula used to determine the sensitivity of a bond's price to a 1% change in interest rates, indicating the percentage change in price for each percentage point change in yields.
Market Yield
The current annual income returned on an investment, measured as a percentage of the investment's market price.
- Differentiate between Macaulay duration and modified duration in financial analysis.
- Investigate the relationship between yield to maturity and both the lifespan and cost of bonds.
Verified Answer
IM
Learning Objectives
- Differentiate between Macaulay duration and modified duration in financial analysis.
- Investigate the relationship between yield to maturity and both the lifespan and cost of bonds.