As the Term of the Security Increases, the Sensitivity of Its

question 12

Multiple Choice

As the term of the security increases, the sensitivity of its price to changes in interest rates:

• A) cannot be determined due to lack of information.
• B) increases.
• C) decreases.
• D) is unchanged.

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Definitions:

Perfectly Inelastic

Describes a situation where the quantity demanded or supplied does not change in response to a price change.

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices over a given period of time.

Income Elasticity

A measurement of how the demand for a good or service changes in response to changes in consumers' income levels.