If Interest Rates Fall from 8 Percent to 7 Percent

question 99

Multiple Choice

If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?

• A) A 10-year zero coupon bond.
• B) A 10-year bond with a 10 percent semiannual coupon.
• C) A 10-year bond with a 10 percent annual coupon.
• D) A 5-year zero coupon bond.
• E) A 5-year bond with a 12 percent annual coupon.

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Definitions:

Political Environment

The set of legal, governmental, and social conditions that affect the operation of businesses and individuals.

Terror Attack

A violent act intended to create fear, perpetrated for a religious, political, or ideological goal.

Per-worker Production Function

A mathematical representation that shows how the amount of output per worker in an economy is affected by the level of capital per worker.

Capital Per Worker

Capital per worker is a ratio that measures the amount of capital assets (such as equipment and machinery) available for each worker, often used as an indicator of labor productivity.