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.

Question

Quizplus · Accepted Answer

Modified duration measures the percentage change in price for a 1% change in yield. For a bond with a modified duration of 9, a 1% increase in yield will decrease the bond's price by approximately 9%. Since it's a par value bond, assuming a par value of $1000, a 9% decrease equates to $90.

Par-Value-Bond F Has a Modified Duration of 9