If Interest Rates Increase from 3% to 4%, a $100,000

question 91

Multiple Choice

If interest rates increase from 3% to 4%, a $100,000 25 year bond with a duration of 21 years would ________ in price by approximately ________.

• A) increase; 24.3%
• B) decrease; 24.3%
• C) increase; 20.4%
• D) decrease; 20.4%

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Definitions:

Voting Stock

Shares of a corporation that give the shareholder the right to vote on matters of corporate policy and on the selection of the board of directors.

Cash Dividend

A disbursement from a corporation to its stockholders, typically coming from its earnings.

Net Income

The ultimate earnings of a company, arrived at by reducing its revenues by all incurred expenses and taxes.

Nonvoting Preferred Stock

A type of preferred stock that does not grant the holder voting rights at the corporation’s shareholders' meetings.