Question
A basis point is: Group of answer choices [A] 1.00% [B] 0.10% [C] 0.01% [D] none of the above Suppose that an investor with a
A basis point is: Group of answer choices
[A] 1.00%
[B] 0.10%
[C] 0.01%
[D] none of the above
Suppose that an investor with a five-year investment horizon is considering purchasing a seven-year 9% coupon bond selling at par. The investor expects that he can reinvest the coupon payments at an annual interest rate of 9.4% and that at the end of the investment horizon two-year bonds will be selling to offer a yield to maturity of 11.2%. What is the total rate of return for this bond?
Group of answer choices
[A] 7.55%
[B] 8.55%
[C] 8.40%
[D] 7.40%
Consider a bond selling at par with modified duration of 10.6 years and convexity of 210. A 2% decrease in yield would cause the price to increase by 21.2%, according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?
Group of answer choices
[A] 21.2%
[B] 25.4%
[C] 17.0%
[D] 10.6%
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