Consider a Zero-Coupon Bond with 20 Years to Maturity

question 80

Multiple Choice

Consider a zero-coupon bond with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity decreases from 7% to 5% is closest to:

• A)46%.
• B)17%.
• C)22%.
• D)38%.

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Definitions:

Innovation

The first commercially successful introduction of a new product, use of a new method of production, or creation of a new form of business organization.

Invention

The conception of a new product or process combined with the first proof that it will work.

Diffusion

The spread of an innovation through its widespread imitation.

Technological Advance

(1) An improvement in the quality of existing products, the invention of entirely new products, or the creation of new or better ways of producing or distributing products. (2) Any improvement in the methods by which resources are combined such that the same quantity of inputs can be made to yield a combination of outputs that is preferred to any combination of outputs that was previously possible.