Assume That All Interest Rates in the Economy Decline from 10

question 78

Multiple Choice

Assume that all interest rates in the economy decline from 10% to 9%.Which of the following bonds would have the largest percentage increase in price?

• A) An 8-year bond with a 9% coupon.
• B) A 1-year bond with a 15% coupon.
• C) A 3-year bond with a 10% coupon.
• D) A 10-year zero coupon bond.
• E) A 10-year bond with a 10% coupon.

---

Definitions:

Markdown Rate

The percentage decrease from the original price of an item to its new sale price.

Raisins

Dried grapes often used in cooking and baking or eaten as a snack.

Mark-up

The gap between the acquisition cost of a product or service and the price at which it's sold, calculated as a fraction of the initial cost.

Operating Profit

Income generated by the primary activities of a business before tax and interest deductions are taken into account.