If You Hold a Bond at a Time When the Market

question 16

Multiple Choice

If you hold a bond at a time when the market interest rate is increasing,you will find that the bond's value will _____

• A)remain the same because the interest payment remains constant.
• B)increase only if the market interest rate is lower than the interest rate payable on the bond.
• C)increase only if the market interest rate exceeds the interest rate payable on the bond.
• D)decrease because you will receive a lower price when you sell the bond.
• E)decrease only if the interest payable on the bond exceeds the market interest rate.

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Definitions:

Recovery Phase

A stage in the economic cycle where activity begins to increase again after a period of recession or depression, marked by rises in employment, consumer spending, and production.

Business Cycle

The cyclic phenomenon of economic expansion and contraction experienced by an economy over time.

Trough

A Trough in economics is a phase in the business cycle where activity is at its lowest point, preceding a recovery and expansion phase.

Business Cycle

The Business Cycle is the fluctuation of economic activity that an economy experiences over a period of time, marked by phases of expansion and contraction.