This Morning, You Purchased a Bond

question 5

Multiple Choice

This morning, you purchased a bond.Which one of these should you expect to occur if you hold this bond during an inflationary period?

• A)the coupon payment will increase in real terms.
• B)the maturity value will increase in nominal terms.
• C)the market price will remain constant at par.
• D)the market price will decrease.

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Definitions:

Arbitrage Opportunity

A situation where a trader can profit from differences in price of the same asset in different markets by simultaneously buying and selling it.

Profit

The financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.