Why Do Garbage Class Bonds Often Have a Negative Duration

question 81

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.
• E)Significant risk premium required by the uninsured depositors.

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Definitions:

Direct Labor-hours

The total hours of labor directly involved in producing goods, used as a measure for costing and operational efficiency.

Manufacturing Overhead

All manufacturing costs that are not directly related to the production of goods or services, such as factory rent, utilities, and equipment maintenance.

Predetermined Overhead Rate

A rate calculated before a cost period begins, used to allocate overhead costs to products based on a chosen activity base.

Direct Labor-hour

A measure of the work time spent by employees who are directly involved in the manufacturing process of a product.