Question

In: Finance

Q. Par-value bond XYZ has a modified duration of 6. Which one of the following statements...

Q. Par-value bond XYZ has a modified duration of 6. Which one of the following statements regarding the bond is true? Please explain

A. If the market yield increases by 1%, the bond's price will decrease by $60.

B. If the market yield increases by 1%, the bond's price will increase by $50.

C. If the market yield increases by 1%, the bond's price will decrease by $50.

D. If the market yield increases by 1%, the bond's price will increase by $60

Expert Solution

% change in bond price = -Modified Duration(Change in yield)

Here,

Modified Duration= 6

Change in yield= 0.01

% change in bond price = -6(0.01)

% change in bond price = -0.06

Negative sign means bond price decreases by 6.0%

Par value = $1,000

Change in Price = 0.06(1,000) = $60

So,

Option A is correct

If the market Yield increases by 1%, the Bond's prove will decrease by $60

jeff jeffy answered 2 years ago

Which one of the following statements is true? The current yield on a par value bond...

Which one of the following statements is true? The current yield on a par value bond will exceed the bond's yield to maturity. A premium bond has a current yield that exceeds the bond's coupon rate. The yield to maturity on a premium bond exceeds the bond's coupon rate. A discount bond has a coupon rate that is less than the bond's yield to maturity. The current yield on a premium bond is equal to the bond's coupon rate.

A three year bond pays semiannually $3 ($6 per year) is trading at 98.50 and has a par value of 100. Find the Macaulay and modified duration.

Directions: All calculations involving interest rates should be answered as a percentage to two decimal places, for example 5.42% rather than 0.05.1.) A three year bond pays semiannually $3 ($6 per year) is trading at 98.50 and has a par value of 100. Find the Macaulay and modified duration.

Q) duration is a measure of volatility of a bond. Which of the following bonds has...

Q) duration is a measure of volatility of a bond. Which of the following bonds has the greatest volatility based their respective duration? a)4.5% b)4.5 years . c) 6.5% d) 6.5 years Q) a DRIP a) is a new form of real rate of return bonds b) allows an investortor receive a stock dividend rather than a cash dividend c) allows an investor to purchase additional shares at a 10% discount d) is a dividend tax credit Q) when is...

Compute the Macaulay duration and modified duration of a 6%, 25-year bond selling at a yield...

Compute the Macaulay duration and modified duration of a 6%, 25-year bond selling at a yield of 9%. Coupon frequency and compounding frequency are assumed to be semiannual.

6. a) What is duration? What is modified duration? &nbsp

6. a) What is duration? What is modified duration? b) What is Macaulay’s duration? c) What is crucial to formulating both active and passive strategies? d) How is immunization of a fully funded plan accomplished? What is a more direct form of immunization? 7. a) Consider an economy where the dominant industry is automobile production for domestic consumption as well as export. Now suppose the auto market is hurt by an increase in the length of...

A 6% coupon bond paying interest semi-annually has a modified duration of 11 years, sells for...

A 6% coupon bond paying interest semi-annually has a modified duration of 11 years, sells for $850, and is priced at a yield to maturity (YTM) of 6.90%. If the YTM increases to 7.65%, the price, using the concept of duration, is predicted to: Group of answer choices decrease by $67.54 decrease by $72.54 decrease by $70.13 decrease by $67.79 decrease by $65.60

Which of the following is true about duration and modified duration? I. The Macaulay duration calculates...

Which of the following is true about duration and modified duration? I. The Macaulay duration calculates the weighted average time before a bondholder would receive the bond's cash flows. II. Modified duration measures price sensitivity of a bond to changes in YTM by adjusting duration with a factor based on current yield. III. The value of duration and modified duration are usually very close, but duration is almost always a larger number.A.Duration is important to banks when they try to...

Which of these statements are true: Price of a bond significantly depends on Par value of...

Which of these statements are true: Price of a bond significantly depends on Par value of a bond. Standard and Poor ratings are more reliable that Moody’s ratings. AAA bonds generates more return than AA bonds. Firms sell their stocks in primary market lower than its real value. In riskier economic condition TED spread would be wider. Negative beta is undefined. Ignoring the magnitudes, Correlation is still more accurate than Covariance. Limit order is safer than Market order. It is...

What is the duration of an 8% annual coupon bond with a par value of $1000...

What is the duration of an 8% annual coupon bond with a par value of $1000 that matures in 3 years? YTM on alternative investments is 10 %

1. Calculate the current bond value of the following bond: it has a par value of...

1. Calculate the current bond value of the following bond: it has a par value of $1000 with a coupon rate of 8% paid annually and matures in 5 years. The required return is 4%. 1178.07 1386.09 2465.78 2651.46 2.Assume that a stock has the same dividend paid in perpetuity. Find the value of the stock with a $3 annual dividend if the required return is 2%. 2.94 3.06 150 1500 3.Company X’s most recent dividends were $1 per share...