Why Do Garbage Class Bonds Often Have a Negative Duration

question 32

Multiple Choice

Why do garbage class bonds often have a negative duration?

• A)The value of the returns in this bond class increases when interest rates increase.
• B)It gives the rights to collateralization.
• C)Bond values fall with interest rate increases.
• D)It gives rights to reinvestment income on the cash flows in the CMO trust.

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Definitions:

Excess Demand

A situation where the demand for a good or service surpasses its supply at the current price, often leading to price increases.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price within a certain time period.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price over a specific period.

Cattle Ranchers

Individuals or businesses involved in raising cattle, mainly for beef production.