Why Is the Yield to Maturity of a Zero-Coupon, Risk-Free

question 91

Multiple Choice

Why is the yield to maturity of a zero-coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?

• A)Since interest rates will rise and fall in response to the movement in bond prices.
• B)Since a bond's price will converge on its face value as the bond approaches the maturity date, the Law of One Price dictates that the risk-free interest rate will reflect this convergence.
• C)Since there is, by definition, no risk in investing in such bonds, the return from such bonds is the best that can be expected from any investment over the period.
• D)Since such a bond provides a risk-free return over that period, the Law of One Price guarantees the
• Risk-free interest rate be equal to this yield.

Examine the intent, implementation, and consequences of the Black Codes.

Understand the basic principles of behavioral economics compared to neoclassical economics.

Recognize the influence of heuristics and cognitive biases on decision-making processes.

Identify factors that impact individual and market behaviors from a behavioral economics perspective.

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Definitions:

Common Cause

A principle or factor that is shared by all members of a group, leading to a particular effect or outcome.

Dangerous Game

Activities or situations that involve a high risk of harm or injury, often undertaken for thrill or challenge.

Death Darer

An individual who acts in ways that significantly increases the risk of death, often driven by underlying psychological issues.

Deaths Occur

The event of a living organism ceasing to live.