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.
E) None of these is true.

Question

Quizplus · Accepted Answer

The modified duration of 9 indicates that for a 1% increase in yield, the bond's price will decrease by approximately 9% of its par value. If the bond's par value is $1,000, a 9% decrease would be $90.

Par Value Bond F Has a Modified Duration of 9