Which Set of Conditions Will Result in a Bond with the Greatest

question 43

Multiple Choice

Which set of conditions will result in a bond with the greatest volatility?

• A) a high coupon and a short maturity
• B) a high coupon and a long maturity
• C) a low coupon and a short maturity
• D) a low coupon and a long maturity
• E) a deferred call feature and a sinking fund

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Definitions:

Proportional

A relationship between two quantities where they increase or decrease at the same rate.

Tax Collection

The process performed by governments or authorized agencies to collect taxes from individuals, corporations, and other entities to fund public expenditures.

Administrative Costs

The resources used (which is a cost) by government to collect the tax, and by taxpayers to pay it as well as to evade it, over and above the amount of the tax.

Inefficiency

A scenario where resources are not used optimally, leading to wasted potential output or outcomes that do not maximize societal welfare.