A Bond Has a Face Value of $1,000,has 5 Years

question 31

Multiple Choice

A bond has a face value of $1,000,has 5 years until maturity,and an annual coupon rate of 7%? It yields 5% currently.By how much will the price change over the next year if the yield remains constant?

• A) zero
• B) decline by $86.59
• C) decline by $15.67
• D) rise by $15.67

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Definitions:

Escalation Of Commitment

Refers to the phenomenon where individuals or organizations continue to invest time, money, or resources into a failing decision or project, due to the substantial investments already made, rather than abandon it.

Psychological Determinants

Factors of psychological origin that influence an individual's behaviors, attitudes, and perceptions.

Group Polarization

describes the phenomenon where discussions within a group lead to an amplification of the group’s initial attitude, making their final stance more extreme.

Overconfidence Bias

A cognitive bias where an individual's subjective confidence in their judgments is greater than their objective accuracy, leading to overly optimistic assessments and decision-making errors.