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 decreases by 1% the bond's price will increase by $60.
E) None of these.

Question

Quizplus · Accepted Answer

The modified duration of 6 indicates that for a 1% increase in yield, the bond's price will decrease by approximately 6% of its par value. If the bond's par value is $1,000, a 6% decrease is $60.

Par Value Bond XYZ Has a Modified Duration of 6