- 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.

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

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.

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