Suppose There Is a Decrease in the Price at Which

question 91

Multiple Choice

Suppose there is a decrease in the price at which a bondholder sells her bond. In this case, the holding period return will:

• A) increase, since yields and prices are inversely related.
• B) decrease, since this lowers the capital gain.
• C) be negative.
• D) equal the coupon rate.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of additional income that will be taken as tax.

Income Increases

A rise in the amount of money received, especially on a regular basis, by an individual or group.

Progressive Tax

A tax system in which the tax rate increases as the taxable amount increases, thereby imposing a higher percentage rate on higher-income earners.

High-Income

Earning a substantial amount of money, typically above the median income level in a given region or country.