If the Bond Market Undergoes a Large Change in Yield

question 1

Multiple Choice

If the bond market undergoes a large change in yield (for example, more than 100 basis points) , then a bond's modified duration will

• A) understate both the price appreciation when rates fall and the price decline when rates increase.
• B) overstate both the price appreciation when rates fall and the price decline when rates increase.
• C) overstate the price appreciation when rates fall and understate the price decline when rates increase.
• D) understate the price appreciation when rates fall and overstate the price decline when rates increase.

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Definitions:

Structuralism

An approach to psychology based on the idea that conscious experience can be broken down into its basic underlying components.

Introspection

Introspection refers to the examination or observation of one's own mental and emotional processes.

Structuralism

A theory of consciousness that emphasizes analyzing the basic components of thoughts and sensations to understand the structure of the mind.

Functionalism

An early school of thought concerned with the adaptive purpose, or function, of mind and behavior.