Assume That All Interest Rates in the Economy Decline from 10

question 79

Multiple Choice

Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the largest percentage increase in price?

• A) a 1-year bond with a 15% coupon.
• B) a 3-year bond with a 10% coupon.
• C) a 10-year zero coupon bond.
• D) a 10-year bond with a 10% coupon.
• E) an 8-year bond with a 9% coupon.

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Definitions:

Chips

Thin slices of vegetables, fruits, or other foods, fried or baked until crisp, often consumed as a snack.

Trade

The exchange of goods or services between entities or individuals.

Premack Principle

The Premack Principle is a psychological principle which suggests that more probable behaviors will reinforce less probable behaviors, meaning that if a person wants to perform a specific activity, they will perform a less desirable activity to get to it.

Decrease

A reduction in quantity, size, or intensity of an object or an action.