Which of the Following Statements Is True

question 28

Multiple Choice

Which of the following statements is true?

• A)Convexity is desirable because the larger the convexity the greater the interest rate protection against interest rate decreases and the greater the potential gains following increasing interest rates.
• B)Convexity is desirable because the larger the convexity the greater the interest rate protection against interest rate rises and the greater the potential gains following decreasing interest rates.
• C)Convexity is undesirable because the larger the convexity the lower the interest rate protection against interest rate rises and the smaller the potential gains following decreasing interest rates.
• D)Convexity is undesirable because the larger the convexity the lower the interest rate protection against interest rate decreases and the smaller the potential gains following increasing interest rates.

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Definitions:

Entry Barriers

Refers to obstacles that hinder new firms from entering a market, such as patents, strong brand loyalty among existing customers, or high capital requirements, essentially similar to barriers to entry but rephrased.

Short Run

A time period during which at least one factor of production is fixed, limiting the ability of the firm to adjust to changes in demand or production costs.

Profit-Maximizing

The strategy or method of modifying the production and sales of products and services to attain the maximum possible profit.

Monopolist

A singular entity or company that has exclusive control over the supply of a particular good or service, giving it significant market power.