A Pricing Theorem for the Bond Market States That a Decrease

question 30

Multiple Choice

A pricing theorem for the bond market states that a decrease in a bond's yield will raise the bond's ___ by an amount that is greater in size than the corresponding fall in the bond's price that would occur if there were an equal-sized increase in the bond's yield

• A) price
• B) coupon rate
• C) yield-to-maturity rate
• D) promised yield

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Definitions:

Disjoint Events

Two events that cannot happen at the same time, meaning they have no outcomes in common.

Conditional Probability

The likelihood of an event or outcome occurring, given that another event has already occurred.

Given Event

An occurrence or outcome within a probability space that has a specified probability attached to it.

Independent Events

Two or more events whose outcomes do not affect each other, meaning the occurrence of one event does not change the probability of the other.