The Prices of Bonds with ____ Are Most Sensitive to Interest

question 2

Multiple Choice

The prices of bonds with ____ are most sensitive to interest rate movements.

• A)high coupon payments
• B)zero coupon payments
• C)small coupon payments
• D)None of these are correct because the size of the coupon payment does not affect the sensitivity of bond prices to interest rate movements.

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Definitions:

Actual Price Level

The current level of prices in the economy for goods and services, reflecting inflation or deflation in the market.

Real Wages

The purchasing power of wages, taking into account the effects of inflation or deflation, representing the quantity of goods and services wages can buy.

Cyclical Unemployment

Unemployment that rises during economic downturns and falls when the economy improves, directly related to cycles of economic upturn and downturn.

Natural Rate

The long-term unemployment rate around which the labor market is considered to be in balance, where the number of people seeking jobs equals the number of jobs available.