Refer to the Information Provided in Figure 20

question 269

Multiple Choice

Refer to the information provided in Figure 20.4 below to answer the question(s) that follow. Figure 20.4
-Refer to Figure 20.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a tariff is imposed the price is $15. After the tariff is imposed

• A) domestic production and consumption will increase by 50 wallets and domestic consumption will increase by 50 wallets.
• B) domestic production will increase by 150 wallets and domestic consumption will decrease by 250 wallets.
• C) domestic production will increase by 100 wallets and domestic consumption will decrease by 100 wallets.
• D) domestic production will increase by 50 wallets and domestic consumption will decrease by 50 wallets.

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Definitions:

Duration

A financial metric that calculates the weighted average time until a bond or a portfolio of bonds pays out its cash flows, used to assess interest rate risk.

Effective Maturity

The average time until a bond is repaid, considering possible calls or prepayments, which might alter the time frame for return on investment.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in financial analyses to find an average value wherein each data point can carry a different weight.

Convexity

A measure of the curvature in the relationship between bond prices and yield, indicating how the duration of a bond changes as interest rates change.