Assume That All Interest Rates in the Economy Decline from 10

question 78

Multiple Choice

Assume that all interest rates in the economy decline from 10% to 9%.Which of the following bonds would have the largest percentage increase in price?

• A) An 8-year bond with a 9% coupon.
• B) A 1-year bond with a 15% coupon.
• C) A 3-year bond with a 10% coupon.
• D) A 10-year zero coupon bond.
• E) A 10-year bond with a 10% coupon.

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Definitions:

Notes Receivable

Claims against others, recorded by an entity, that are evidenced by promissory notes, indicating the others’ promises to pay specified amounts at predetermined dates.

Current Liabilities

Current liabilities are a company's debts or obligations due within one year, appearing on the balance sheet and requiring the use of current assets.

Time to Maturity

The remaining lifespan of a debt instrument, indicating the length of time until the principal amount must be repaid.

Dishonored Notes Receivable

A note receivable that has not been paid by the maker at its maturity date, resulting in a failure to meet the financial obligation.