Question
There is a 4-year pure discount bond with a $10,000 face value. If todays YTM is 5% and the term structure is flat. The quoted
There is a 4-year pure discount bond with a $10,000 face value. If todays YTM is 5% and the term structure is flat. The quoted price of this bond is 82.27%, and its modified duration is 3.81, its relative convexity is 6.00. Coupon frequency and compounding frequency are assumed to be annual. If interest rates increase by 2 percent, how much change in price can be estimated based on duration measure and convexity measure?
A. The bond price drops by $503.99
B. The bond price drops by $635.70
C. The bond price drops by $617.03
D. The bond price drops by $484.23
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Intermediate Accounting
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
10th Canadian Edition, Volume 1
978-0176509736
