When Interest Rates Increase,the Duration of a 20-Year Bond Selling

question 50

Multiple Choice

When interest rates increase,the duration of a 20-year bond selling at a premium _________.

• A) increases
• B) decreases
• C) remains the same
• D) increases at first, then declines

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Definitions:

Adverse Selection

A situation in which one party in a transaction has more or better information than the other party, typically resulting in an unfavorable selection process.

Peaches

A type of fruit with a distinctive sweet taste, fuzzy skin, and a pit or stone in the center.

Lemons

A term that describes a product of significantly lower quality than what has been claimed, especially in the context of used vehicles.

Moral Hazard

Arises when one party to a contract changes behavior in response to that contract and thus passes on the costs of that behavior change to the other party.