Consider a Four Year, Zero-Coupon Bond, with a Yield to Maturity

question 16

Multiple Choice

Consider a four year, zero-coupon bond, with a yield to maturity of 7.2%. What is the duration of the bond?

• A) 4.000
• B) 3.785
• C) 3.614
• D) 3.548

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Definitions:

Socially Optimal Price

The price of a good or service that reflects the true cost to society, accounting for externalities and ensuring allocative efficiency.

Transaction Costs

Expenses incurred when buying or selling goods and services, which can include fees, taxes, and other costs.

Externality Problem

A situation where the actions of individuals or businesses result in benefits or costs to others that are not reflected in market prices.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often leading to market failures when not properly accounted for.