Because of a Change in the Required Rate of Return

question 43

Multiple Choice

Because of a change in the required rate of return from 11 percent to 13 percent, the bond price of a zero-coupon bond will fall from $1,000 to $860. Thus, the bond price elasticity for thisbondis

• A) 0.77.
• B) -0.77.
• C) -0.90.
• D) -1.06.
• E) none of the above.

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Definitions:

Financial Capital

The money, credit, and other forms of funding that businesses use to invest in resources for future growth.

Opportunity Cost

Waiving prospective gains from various alternatives by settling on one option.

Foregone Alternative

The option or course of action that is given up when another is chosen; closely related to the concept of opportunity cost.

Opportunity Cost

The charge of rejecting the following prime opportunity in the process of decision-making.