Consider a Security with a Duration of 2

question 41

Multiple Choice

Consider a security with a duration of 2.78 years. The current interest rate level is 10 per cent p.a. How does the price of the security change if interest rates decrease by 100 basis points (round to two decimals) ?

• A) The price of the security will decrease by 1 per cent.
• B) The price of the security will increase by 1 per cent.
• C) The price of the security will decrease by 2.50 per cent.
• D) The price of the security will increase by 2.50 per cent.

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Definitions:

Direct Material Price Variance

The difference between the actual cost of direct materials and the expected (or standard) cost.

Direct Labour Rate Variance

The difference between the actual cost of direct labor and the expected (or standard) cost, based on the standard wages paid for that labor.

Direct Labour Efficiency Variance

A measure used in management accounting to assess the difference between the actual hours worked and the standard hours expected to produce a certain level of output.

Direct Labour Price Variance

The difference between the actual cost of direct labor and the expected (or standard) cost, based on the actual hours worked.