Measuring interest rate risk · Question 9 of 12
What does a bond's modified duration indicate approximately?
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Answer
- B The percentage price change for a one-percentage-point change in yield
Explanation
Duration is the most important measure of interest rate risk. A modified duration of 7 means that the price falls by about 7% if the yield rises by one percentage point. Macaulay duration, by contrast, describes the average time capital is tied up, in years.