You Own a Bond That Has a Duration of 6

question 63

Multiple Choice

You own a bond that has a duration of 6 years.Interest rates are currently 7% but you believe the Fed is about to increase interest rates by 25 basis points.Your predicted price change on this bond is ________.

• A) +1.40%
• B) -1.40%
• C) -2.51%
• D) +2.51%

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Definitions:

Physiological Arousal

The body’s response to a stimulus, which includes increased heart rate, sweating, and heightened senses.

States of Emotion

The temporary emotional experiences or feelings that vary in intensity and occur in response to external or internal events.

Two-Factor Theory

The Schachter-Singer theory that to experience emotion one must (1) be physically aroused and (2) cognitively label the arousal.

Sympathetic Nervous System Activity

Part of the autonomic nervous system that prepares the body for "fight or flight" responses, increasing heart rate, blood flow, and energy release.