An Open-End Bond Mutual Fund Is Holding a Three-Year, $1

Multiple Choice

An open-end bond mutual fund is holding a three-year, $1 million face value 5 percent annual coupon bond selling at par.What is the impact on the total asset value of the fund of a 1 percent decrease in interest rates?

A) A decrease of $10,000.
B) An increase of $10,000.
C) A decrease of $26,730.
D) An increase of $27,751.
E) The answer depends upon the number of mutual funds shares outstanding.