With a Four-Year Bond of Face Value $1000 Paying an Annual

question 27

Multiple Choice

With a four-year bond of face value $1000 paying an annual coupon of 6%,if current market yields of 6% change to 7%:

• A) its duration will increase.
• B) the duration price formula will underestimate the change in price.
• C) the duration price formula will overestimate the change in price.
• D) its duration will decrease.

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Definitions:

Equilibrium

A state in economics where demand equals supply, resulting in a stable market price and quantity.

Take Home Pay

The amount of income left after deductions such as taxes and retirement contributions are taken out of an individual's gross salary.

Labor Cost

The total expenditure faced by employers for the wages, benefits, and taxes associated with employing labor.

Tax Burden

The economic impact of taxation on an individual or entity, often expressed as the total amount of tax paid divided by the total income.