Suppose You Are Trying to Price a Bond

question 230

Multiple Choice

Suppose you are trying to price a bond. Which of the following is false?

• A) The lower the discount rate, the more valuable the coupon payments are today.
• B) Bonds with high coupon payments are generally (all else the same) more sensitive to changes in interest rates than bonds with lower coupon payments.
• C) When market interest rates rise, bond prices will fall, all else the same.
• D) Bonds with long maturities are generally (all else the same) more sensitive to changes in interest rates than bonds with shorter maturities.
• E) All else the same, bonds with larger coupon payments will have a higher price today.

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Definitions:

Cognitive Dissonance

A psychological state in which an individual experiences discomfort due to holding contradictory beliefs, attitudes, or actions simultaneously.

Foot-In-The-Door Phenomenon

A compliance tactic that involves getting a person to agree to a small request to increase the likelihood they will agree to a larger request later.

Peripheral Route Persuasion

A method of persuasion that relies on superficial cues to promote a response without demanding critical analysis of the content of the message.

Fundamental Attribution Error

The tendency to overestimate personality-based explanations for others' behaviors while underestimating situational factors.