Assume That All Interest Rates in the Economy Decline from 10

question 73

Multiple Choice

Assume that all interest rates in the economy decline from 10% to 9%.Which of the following bonds would have the largest percentage increase in price?

• A) A 1-year bond with a 15% coupon.
• B) A 3-year bond with a 10% coupon.
• C) A 10-year zero coupon bond.
• D) A 10-year bond with a 10% coupon.
• E) An 8-year bond with a 9% coupon.

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Definitions:

Financial Statements

Documents that report the financial activities and conditions of a business or entity, typically including balance sheet, income statement, and cash flow statement.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Financial Position

The status of a company's assets, liabilities, and equity at a specific point in time, typically shown in the balance sheet.