Which of the Following Statements Is CORRECT

question 1

Multiple Choice

Which of the following statements is CORRECT?

• A) the time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.
• B) you hold two bonds. one is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon. the same market rate, 6%, applies to both bonds. if the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.
• C) the shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.
• D) the longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates.
• E) you hold two bonds. one is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon. the same market rate, 6%, applies to both bonds. if the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline.

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Definitions:

Federal Trade Commission

A federal agency established to protect consumers and promote competition by preventing anticompetitive, deceptive, and unfair business practices.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by supply and demand.

Economic Efficiency

A state in which resources are allocated in a way that maximizes the production of goods and services at the lowest cost, while achieving the highest possible welfare or utility.

Negative Externalities

Costs experienced by third parties due to the actions of others that are not reflected in market prices.