Based on the Table of Zero Coupon Bond Prices, Below

question 29

Multiple Choice

Based on the table of zero coupon bond prices, below, what is the shape of the yield curve? Each bond has a face value of $100. $$\begin{array} { | c | c | } \hline \text { Maturity } & \text { Price } \\\hline 1 & 95.24 \\\hline 2 & 90.70 \\\hline 3 & 86.38 \\\hline 4 & 82.27 \\\hline\end{array}$$

• A)Flat
• B)Upward sloping
• C)Downward sloping
• D)Not enough information

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Definitions:

Federal Income Tax

A tax levied by the federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Double-declining Balance

A method of accelerated depreciation where the asset’s book value is decreased at double the rate of traditional straight-line depreciation.

Straight-line Depreciation Rate

The straight-line depreciation rate is a method of calculating the depreciation of an asset, where its cost is evenly spread over its useful life, resulting in a fixed annual depreciation expense.

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life.