Third Duration Investments has the following assets and liabilities on its balance sheet. The two-year Treasury notes are zero coupon assets. Interest payments on all other assets and liabilities occur at maturity. Assume 360 days in a year.
-If interest rates increase by 20 basis points,what is the approximate change in the market price using the duration approximation?
A)-$7.985
B)-$7.941
C)-$3.990
D)+$3.990

Question

Third Duration Investments has the following assets and liabilities on its balance sheet. The two-year Treasury notes are zero coupon assets. Interest payments on all other assets and liabilities occur at maturity. Assume 360 days in a year.  
-If interest rates increase by 20 basis points,what is the approximate change in the market price using the duration approximation?
A)-$7.985 
B)-$7.941 
C)-$3.990 
D)+$3.990

Quizplus · Accepted Answer

Modified Duration
11efb870_ddca_117f_9137_dd5ba3561ee3_TB1314_00 The duration approximation formula is: Change in Price ≈ -Duration × Change in Yield × Initial Price. Assuming the initial price is $100 and the duration is 4, a 20 basis point increase (0.002) would result in a price change of approximately -$7.985.

Third Duration Investments Has the Following Assets and Liabilities on Its