- Option : A
- Explanation : Carrying value of a bond is computed using the effective interest rate method. It is the price along the bond's constant- yield price trajectory. For premium bonds, as the premium is amortized, the book value of the bond will decrease until we reach face value at maturity. The question tells us that the bond was purchased above par, therefore it is a premium bond. So among the three options A is correct.

You must be logged in to post a comment.

- Option : B
- Explanation :

You must be logged in to post a comment.

You must be logged in to post a comment.

- Option : B
- Explanation : Modified duration = (Macaulay Duration) / (1 + r) = 10 / ( 1 + ( 0.08 / 2 ) ) = 9.62 years

You must be logged in to post a comment.

You must be logged in to post a comment.

25. Which of the following statements about duration is incorrect? A bond’s:

- Option : C
- Explanation : Modified duration = Macaulay Duration / ( 1 + r ). Therefore a bonds Macaulay duration is typically more than its modified duration.

You must be logged in to post a comment.

You must be logged in to post a comment.

You must be logged in to post a comment.