A Corporate Bond Returns 12% of Its Cost (In PV

question 23

Multiple Choice

A corporate bond returns 12% of its cost (in PV terms) in the first year, 11% in the second year, 10% in the third year and the remainder in the fourth year. What is the bond's duration in years?

• A) 3.68 years
• B) 2.50 years
• C) 4.00 years
• D) 3.75 years
• E) 3.32 years 3.32 = (12% * 1) + (11% * 2) + (10% * 3) + (67% * 4)

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Definitions:

Reinforcement

In behavioral psychology, a consequence applied that strengthens an organism's future behavior whenever that behavior is preceded by a specific antecedent stimulus.

Latent Learning

Learning that occurs without any obvious reinforcement of the behavior or associations that are learned, becoming apparent only when there is an incentive to demonstrate it.

Variable-Ratio

A schedule of reinforcement where a response is rewarded after an unpredictable number of responses, often used in gambling and behavior training.

Shaping

A method used in behavior therapy and training that involves reinforcing successive approximations of a target behavior until the desired behavior is achieved.