Asked by
alussa lewis
on Nov 04, 2024
Verified
Par-value bond XYZ has a modified duration of 6. 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 $60.
B) If the market yield increases by 1%, the bond's price will increase by $50.
C) If the market yield increases by 1%, the bond's price will decrease by $50.
D) If the market yield increases by 1%, the bond's price will increase by $60.
Modified Duration
A measure of the sensitivity of a bond's price to changes in interest rates, adjusted to account for changes in yield.
Market Yield
Refers to the expected yield of a bond based on its current price in the market, which can fluctuate with changes in interest rates and market conditions.
Bond Price
The market value of a bond, which fluctuates based on interest rates, the bond's credit quality, and other factors.
- Ascertain and expound upon the Macaulay and modified durations for different types of bonds.
- Identify the boundaries and presuppositions that underpin duration and its modifications.
Verified Answer
ER
Learning Objectives
- Ascertain and expound upon the Macaulay and modified durations for different types of bonds.
- Identify the boundaries and presuppositions that underpin duration and its modifications.