The Relationship Between a Bond's Price and the Yield to Maturity

question 43

Multiple Choice

The relationship between a bond's price and the yield to maturity

• A)changes at a constant level for each percentage change of yield to maturity.
• B)is an inverse relationship.
• C)is a linear relationship.
• D)changes at a constant level for each percentage change of yield to maturity and is an inverse relationship.

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Definitions:

Marginal Cost

The expense associated with manufacturing an extra single unit of a product or service.

Profit Maximizing

The process of adjusting production and sale strategies to achieve the highest possible profits.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues; represents the extra amount over the payment needed to keep a resource in its current use.

P = ATC

An equation indicating the price level (P) at which the average total cost (ATC) of production is exactly met, often representing a break-even point for firms in competitive markets.