The Economy Is Slowing and Many Forecasters Predict a Recession

question 42

Multiple Choice

The economy is slowing and many forecasters predict a recession.You expect the monetary authorities to relax monetary policy which will cause interest rates to fall.You expect the yield on the Walt Disney 10-year bond to fall from 5% to 4%.The bond has a face value of $1,000,and a coupon of 3.25%.If you want to make $5,000 by investing in bonds to profit from the interest rate change,what position do you take?

• A) Buy 67 bonds
• B) Buy 81 bonds
• C) Buy 48 bonds
• D) Short sell 55 bonds
• E) Short sell 92 bonds

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Definitions:

Tit-For-Tat

A strategy in game theory where a participant mimics the actions of their opponent, typically in retaliation or as a form of reciprocal behavior.

Cooperatively

This term describes actions or operations done jointly by a group or parties working together towards a common goal or benefit.

Imperfect Competition

A market structure in which no firm is a monopolist, but producers nonetheless have market power they can use to affect market prices.

Oligopoly

A market structure characterized by a small number of firms controlling a large majority of the market share.