Answer-first summary for fast verification
Answer: If a consol (perpetual) bond with a $100 face value pays a 3.0% coupon in perpetuity and the yield is 5.0%, the consol's price is $60 and its modified duration is 20 years.
## Explanation Let's verify Option A: **Consol Bond Price Calculation:** - Face value: $100 - Coupon rate: 3.0% - Annual coupon payment = 3.0% × $100 = $3 - Yield: 5.0% Price of a perpetual bond = Annual coupon payment / Yield Price = $3 / 0.05 = $60 ✓ **Modified Duration Calculation:** For a perpetual bond, modified duration = 1 / Yield Modified duration = 1 / 0.05 = 20 years ✓ Both calculations are correct, so Option A is TRUE. Option B is incomplete in the text, but even if completed, it would likely be false because while a barbell portfolio typically has greater convexity than a bullet portfolio, the barbell doesn't "always" outperform - it depends on yield curve movements and other factors. Therefore, **Option A is the correct answer**.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
Which of the following is TRUE?
A
If a consol (perpetual) bond with a $100 face value pays a 3.0% coupon in perpetuity and the yield is 5.0%, the consol's price is $60 and its modified duration is 20 years.
B
Since a BARBELL bond portfolio has greater convexity than a BULLET, the barbell always