You Have an Investment Horizon of 6 Years

question 88

Multiple Choice

You have an investment horizon of 6 years. You choose to hold a bond with a duration of 4 years. Your realized rate of return will be larger than the promised yield on the bond if ________.

• A) interest rates increase
• B) interest rates stay the same
• C) interest rates fall
• D) The answer cannot be determined from the information given.

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Definitions:

Current Costs

The costs that would have to be incurred to replace or reproduce an asset in the current period, under current market conditions.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Net Income

The total earnings of a company after accounting for all expenses, taxes, and additional income streams, representing the company’s profit.

Inventory Levels

The quantity of goods and materials on hand available for sale or used in production at any given time within a business.