What Happens to the Price of a Three-Year Bond with an 8

question 59

Multiple Choice

What happens to the price of a three-year bond with an 8 percent coupon when interest rates change from 8 percent to 6 percent?

• A)A price increase of $51.54
• B)A price decrease of $51.54
• C)A price increase of $53.47
• D)No change in price Using the BAII Plus Calculator:

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Definitions:

Framing Effect

The influence of wording, or the context in which information is presented, on decision making.

Overconfidence

A cognitive bias where an individual’s subjective confidence in their judgments is greater than their objective accuracy.

Chomsky's Hypothesis

A theory suggesting that the ability to learn language is innate, i.e., biologically programmed within humans.

Innate Ability

A natural talent or skill that a person is born with, not acquired through learning or experience.