Consider a Bond Portfolio Manager Who Expects Interest Rates to Decline

question 28

Multiple Choice

Consider a bond portfolio manager who expects interest rates to decline and must choose between the following two bonds. Bond A: 10 years to maturity, 5 percent coupon, 5 percent yield to maturity
Bond B: 10 years to maturity, 3 percent coupon, 4 percent yield to maturity

• A) Bond A because it has a higher coupon rate
• B) Bond A because it has a higher yield to maturity
• C) Bond B because it has a lower coupon rate
• D) Bond A or Bond B because the maturities are the same
• E) None of these are correct.

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Definitions:

Random Assignment

Procedure whereby each study participant has an equal chance of being in each treatment group.

Random Assignment

Refers to the process in procedural statistics and experimental design where study participants are assigned to either the treatment or control group using a random method to ensure that each participant has an equal chance of being placed in any group.

External Validity

The extent to which the findings from a study can be generalized to other people, other settings, and other time periods.

Placebo

An inactive substance or treatment given to a participant in a study, used to test the efficacy of a therapy or medication.