Suppose You Are Holding a 5 Percent Coupon Bond Maturing

question 28

Multiple Choice

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year,what is the yearly return on the bond you are holding?

• A)5 percent
• B)10 percent
• C)15 percent
• D)20 percent

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Definitions:

Continuity

The concept that certain processes or developments occur in a smooth, uninterrupted manner over time.

Proximity

Nearness in space, time, or relationship.

Similarity

The state of being alike or sharing common features, used in various contexts to describe resemblance or equivalence between entities.

Closure

The psychological need to seek resolution and a sense of completeness or finality in our perceptions and relationships.