A newly issued two-year coupon bond has a par value of $100,a coupon rate of 5 percent ($5)and a yield y = 4 percent per year.If the yield goes up by 0.5 percent,then,according to the modified duration formula for a bond's price change,the bond price will:

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The modified duration formula for a bond's price change due to a change in yield is: $\Delta P = -D_{mod} \times \Delta y \times P$, where $\Delta P$ is the change in price, $D_{mod}$ is the modified duration, $\Delta y$ is the change in yield, and $P$ is the initial price of the bond. For a two-year coupon bond with a coupon rate of 5% and an initial yield of 4%, the price of the bond will decrease when the yield increases by 0.5% (or 0.005 in decimal form). The modified duration provides a measure of the bond's sensitivity to changes in yield, indicating that the bond's price will decrease as the yield increases. The exact calculation of the modified duration and the resulting price change would depend on the bond's cash flows and the specific increase in yield, but the general direction of the price change (downward) and the fact that it's a specific amount (in this case, $0.96) align with the principles of bond pricing and interest rate risk.

A Newly Issued Two-Year Coupon Bond Has a Par Value