Calculate the Expected Return on a $6,000 Bond That Pays

question 119

Multiple Choice

Calculate the expected return on a $6,000 bond that pays 6 percent of face value and whose price has a 30-percent chance of falling by $1,000 and a 70-percent chance of rising by $1,000.

• A)$360
• B)-$760
• C)$650
• D)$950
• E)-$40

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Definitions:

Increasing-Cost Industry

An industry in which the costs of production increase as the output expands, usually due to factors like shortages of resources or increased prices of inputs.

Increasing Returns

A situation in economics where an increase in the scale of production leads to a greater than proportional increase in output, often resulting in economies of scale.

Fixed Factor Prices

A condition where the prices of inputs used in production, such as labor or raw materials, remain constant regardless of the output level.

Long-Run Supply Curve

A curve showing the relationship between price and quantity supplied over time, assuming all factors of production can be varied.