Answered: If a bond's modified duration is 6 and…

If a bond's modified duration is 6 and the interest rate goes down by 0.95%, the price of the bond will: increase by 5.7%. decrease by 5.7%. increase by 6%. decrease by 6%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 7PROB

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

If a bond's modified duration is 6 and the interest rate goes down by 0.95%, the price of the bond will:

increase by 5.7%.

decrease by 5.7%.

increase by 6%.

decrease by 6%.

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