USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 67

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with four years to maturity and a 5 percent coupon has a yield to maturity of 6 percent. Interest is paid annually.
-Refer to Exhibit 13.3. Estimate the percentage price change for this four-year, $1,000 par value bond, with an annual 5 percent coupon, if the yield falls from 6 percent to 5.5 percent.

• A)-3.50 percent
• B) -1.75 percent
• C) 1.75 percent
• D) 3.50 percent
• E) 0 percent

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Definitions:

Money Supply

The overall volume of fiscal assets in an economy, which includes cash, coins, and amounts in checking and savings accounts, at a certain time.

Rational Expectations

An economic theory suggesting that individuals make predictions about future economic events using all available information in an unbiased and informed manner.

Discretionary Policies

Economic policies based on the judgment and decisions of policymakers, as opposed to set rules or formulas, often involving changes in government spending or taxation.

Policy Rules

Guidelines or protocols that dictate the actions of an organization or government in specific situations to achieve desired outcomes.