An annual payment bond has a 9 percent required return. Interest rates are projected to fall 25 basis points. The bond's duration is 12 years. What is the predicted price change? Multiple Choice 1.95 percent 33.33 percent −1.95 percent −2.75 percent 2.75 percent

2.75 percent

Explanation:

A payment bond is usually used by contractors to assure their business partners that the surety bond on the goods and services provided by the subcontractors will be paid. The payment bond is often used with the performance bonds. Therefore, the estimated price change for the payment bond is (-12)*(-0.0025/1.09) = (-12)*(-0.0022936) = 0.0275 = 2.75%

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