Asked by Aiden Kravitz on Jul 07, 2024
Verified
An 8%, 30-year bond has a yield to maturity of 10% and a modified duration of 8 years. If the market yield drops by 15 basis points, there will be a ________ in the bond's price.
A) 1.15% decrease
B) 1.2% increase
C) 1.53% increase
D) 2.43% decrease
Yield To Maturity
The total return anticipated on a bond if it is held until the end of its lifetime, accounting for interest payments and price changes.
Modified Duration
A formula that predicts the change in a bond's price for a 1% change in interest rates, considering the bond's yield to maturity.
Basis Points
A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 0.01%.
- Identify the impact of fluctuations in yield on the prices of bonds.
Verified Answer
NM
Learning Objectives
- Identify the impact of fluctuations in yield on the prices of bonds.