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Answer: 1.72.
The correct answer is **A (1.72)**. The approximate modified duration of a bond is calculated as: \[ \text{ApproxModDur} = \frac{(PV_{+}) - (PV_{-})}{2 \times (\Delta \text{Yield}) \times PV_0} \] Substituting the given values: \[ \text{ApproxModDur} = \frac{103.40 - 100.95}{2 \times 0.0070 \times 101.80} = \frac{2.45}{1.4252} = 1.7191 \approx 1.72 \] **Option B (2.25)** is incorrect because it omits the higher yield/lower price from the calculation and the multiplication by 2 in the denominator. **Option C (3.44)** is incorrect because it omits the number 2 from the denominator entirely.
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An analyst observes the following price-yield relationship for an option-free bond: Price per 100 of Par Value | Yield to Maturity 100.95 | 7.45% 101.80 | 6.75% 103.40 | 6.05% If the bond trades at 101.80 per 100 of par value, its approximate modified duration is closest to:
A
1.72.
B
2.25.
C
3.44.