The Following Payoff Matrix Shows the Outcomes for the US

question 61

Multiple Choice

The following payoff matrix shows the outcomes for the US and the USSR from relying on conventional weapons or atomic weapons.The percentages refer to the fraction of the population that would die if a war occurred under the two weapons strategies.Assume the payoff matrix is for 1945,shortly after the US had demonstrated the effectiveness of the atomic bomb in World War II,i.e. ,the example begins in the upper right cell where USA has atomic weapons and the USSR has only conventional weapons. $\begin{array}{c}\text { USSR }\\\text { USA }\begin{array}{|l|l|l|}\hline &{\text { Atomic Weapona }} & {\text { Conventional }} \\\hline \text { Atomis}& \text { In the USA, } 60 \% \text { would die, } & \text { In the USA S\% would die, } \\ \text { Wespons}&\text { In the USSR, } 60 \% \text { would die } & \text { In the USSR, } 90 \% \text { would die } \\\hline \text { Conventional}&\text { In the USA, } 90 \% \text { would die; } & \text { In the USA } 10 \% \text { would dies } \\&\text { In the USSR, } 5 \% \text { would die } & \text { In the USSR, } 10 \% \text { would die. } \\\hline\end{array}\end{array}$
Refer to the information given above.When the United States demonstrated its nuclear capability in the 1940's,the predictable result was:

• A) the arms race ended.
• B) the USSR responded by developing chemical weapons.
• C) the USSR developed its nuclear capability.
• D) the United States decided to refrain from development.

Recognize the concepts of duration and modified duration as measures of interest rate sensitivity.

Identify the factors affecting bond duration and how they influence bond price volatility.

Understand the difference between active and passive bond portfolio management strategies.

Assess the role of interest-rate risk in bond portfolio management for both active and passive managers.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, particularly in terms of liquidity.

Prime Rate

The interest rate that banks charge their most credit-worthy customers, usually a basis for other interest rates.

Interest Banks

Financial institutions that primarily engage in dealings with interest rates, offering services such as saving accounts and loans.

Maturity

The state at which an entity, such as a financial instrument or product, has fully developed or reached its maximum potential.