Question

Consider a bond with a par value of $1,000, a 5% coupon rate paid semiannually, and 5 years to maturity.  Assuming a 6% required rate of return, use a financial calculator to determine the present value of the bond.

A) $957.35

B) $959.00

C) $1,000.00

D) $1,091.59

16. If a bond has a modified duration of 7 and interest rates increase by 50 basis points, what would be the percentage change in the price of the bond?

%△Pb

=

-DURm

x

△y

A) +3.5%

B) -3.5%

C) +7.0%

D) -7.0%

Answer 1

1.

Correct option is > A) $957.35

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate = Rate / Frequency =	3.000000
PMT = FV x Coupon rate / Frequency	-$25.00
N = Number of years remaining x frequency =	10
FV = Future Value or Face Value =	-$1,000.00
CPT > PV = Present value =	$957.35

2.

Correct option is > B) -3.5%

Percentage change in price = -Duration x Change in yield

Percentage change in price = -7 x 0.50% = -3.5%