A Company Invests $1,000 in a Five-Year Zero-Coupon Bond and $4,000

question 4

Multiple Choice

A company invests $1,000 in a five-year zero-coupon bond and $4,000 in a ten-year zero-coupon bond.What is the duration of the portfolio?

• A) 6 years
• B) 7 years
• C) 8 years
• D) 9 years

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Definitions:

Consumption

The use of goods and services by households, constituting one of the major components of GDP.

APC

Average Propensity to Consume, which is the fraction of income that is consumed rather than saved.

MPS

The marginal propensity to save refers to the portion of each additional dollar of income that is set aside for savings instead of being spent.

Induced Consumption

Consumer spending that increases when income increases and decreases when income decreases.