If a Bond's Volatility Is 5% and the Interest Rate

question 2

Multiple Choice

If a bond's volatility is 5% and the interest rate changes by 0.5% (points) then the price of the bond:

• A) changes by 5%
• B) changes by 2.5%
• C) changes by 7.5%
• D) none of the above

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Definitions:

Monetary Cost

The amount of money required to purchase goods or services, or the financial expenditure associated with an action or decision.

Benefits Received

A principle in public finance that taxes should be levied according to the benefits received by the taxpayer from government services.

Price Elasticity

A measure of how responsive the quantity demanded of a good is to a change in its price.

Demand Curve

The number of units of a product that people would be willing to purchase at different price levels.