**QUESTION**

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Using the modifled bond duration of 2.443 years, if you anticipate bond ylelds will increase by 1.4 percentage points, then the price of the bond will decrease by: 3.112 percent 3.420 percent 3.591 percent 3.728 percent Now sugpose bond vields increase by 1.4 percentage points as expected (from 10 percent to 11.4 percent), such that the new price of the bond wil be 5966.02. Using the treditional percentoge change formule, the new price of the bond refiects a decrease in the price of the bond by ifrom which it can be seen that if an investor relies on modified duration to estimate the percentage change in the price of a bond, they wil tend to the price decrease assodated with an increase in rates.