Par-value-bond GE has a modified duration of 11. 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 $55.
B) If the market yield increases by 1%, the bond's price will increase by $55.
C) If the market yield increases by 1%, the bond's price will decrease by $110.
D) If the market yield increases by 1%, the bond's price will increase by $110.

Question

Quizplus · Accepted Answer

Modified duration indicates the percentage change in a bond's price for a 1% change in yield. A modified duration of 11 means the bond's price will decrease by 11% if the yield increases by 1%. For a par-value bond, this translates to a $110 decrease.

Par-Value-Bond GE Has a Modified Duration of 11