What Is the Relationship Between the Price of a Straight

question 99

Multiple Choice

What is the relationship between the price of a straight bond and the price of a callable bond?

• A) The straight bond's price will be higher than the callable bond's price for low interest rates.
• B) The straight bond's price will be lower than the callable bond's price for low interest rates.
• C) The straight bond's price will change as interest rates change, but the callable bond's price will stay the same.
• D) The straight bond and the callable bond will have the same price.
• E) There is no consistent relationship between the two types of bonds.

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Definitions:

Variable Factor

In economics, it refers to any input whose quantity can be changed in the short term to affect production levels.

Increasing Returns to Scale

A situation in which output increases by a greater proportion than the increase in inputs used.

Average Costs

The total cost of production divided by the total quantity produced, reflecting the cost per unit of output.

Isocost Line

A graph representing all combinations of inputs that have the same total cost.