A bond is initially trading at a price of $98.725. If interest rates decrease by 25bp, its price is expected to rise to $99.875. On the other hand, if interest rates increase by 25bp, its price is expected to fall to $97.465. The bond’s modified duration is closest to:

A 4.88.

explanation

Modified duration = (99.875 – 97.465)/(2 x 98.725 x 0.0025) = 4.88

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