Consider Two Recent Bond Issues by Microsoft: Both Have Face

question 76

Multiple Choice

Consider two recent bond issues by Microsoft: both have face values of $1,000 and coupon rates of 10% but one bond (call it the short bond) has five years to maturity and the other,the long bond,has twenty years to maturity.Which bond do you expect to be more sensitive to a change in yields? That is,for a given change in yield which bond (the long or the short) will experience a greater change in price?

• A) The long bond
• B) They are equally sensitive.
• C) The short bond

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Definitions:

Job Cost

A method used in accounting to track the costs associated with a specific job or order, capturing materials, labor, and overhead expenses.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to apply manufacturing overhead to products or job orders.

Direct Labor-hours

The total hours worked by employees who are directly involved in the manufacturing or production process of goods.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated based on estimated costs and activity levels.