Modified duration of a bond measures:

Modified duration of a bond measures:
A . The change in value of a bond when yields increase by 1 basis point.
B . The percentage change in a bond price when yields increase by 1 basis point.
C . The present value of the future cash flows of a bond calculated at a yield equal to 1%.
D . The percentage change in a bond price when the yields change by 1%.

View Answer

Answer: D

Explanation:

Modified duration of a bond measures the sensitivity of the bond’s price to changes in interest rates. It

approximates the percentage change in the price of the bond for a 1% change in yield, helping investors understand the bond’s interest rate risk.