Terry owns a thirty-year zero-coupon bond priced at $304.78. If interest rates increase by 50 basis...

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Terry owns a thirty-year zero-coupon bond priced at $304.78. If interest rates increase by 50 basis points, how much will the

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Answer 1

Answer #1

Calculating Yield,

Yield = (1,000/304.78)^1/30 - 1 = 4.04%

Duration of Zero Coupon Bond = Maturity of Bond

Duration = 30 years

Modified Duration = 30/(1.0404) = 28.84 years

Change in Price = -28.84(0.0050)

Change in Price = -14.42%

Option D is correct

The price will decrease more than 10%

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Answer 2

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