In Which of the Following Two Bonds Would You Prefer

question 50

Essay

In which of the following two bonds would you prefer to invest if you expect interest
rates to decrease by 50 basis points in the near future? Why?
Bond A: A zero-coupon, 10-year Treasury bond
Bond B: A zero-coupon, 15-year Treasury bond

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Definitions:

Licensing Suppliers

The process by which a business grants other businesses permission to manufacture its product or provide its service in exchange for a fee or royalty.

Price Floor

A government-imposed minimum price that can be charged for a commodity, above what would be set by market forces, to ensure that producers receive a minimum income.

Equilibrium Price

The price in the market where the amount of products offered matches the amount of products consumers want to buy.

Quota Rent

Quota Rent is the economic rent a producer earns from the difference between the domestic price and the world price due to a quota system limiting imports.