If the Bond Market Undergoes a Large Change in Yield

question 31

Multiple Choice

If the bond market undergoes a large change in yield (for example, more than 100 basis points) , then a bond's duration will

• A)understate both the price appreciation when rates fall and the price decline when rates increase.
• B)overstate both the price appreciation when rates fall and the price decline when rates increase.
• C)overstate the price appreciation when rates fall and understate the price decline when rates increase.
• D)understate the price appreciation when rates fall and overstate the price decline when rates increase.

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Definitions:

Batch Setup

The process and costs associated with preparing equipment and operations for producing a set quantity of goods.

Manufacturing Overhead

All indirect factory-related costs incurred during the production process, excluding direct materials and direct labor costs.

Direct Labour-Hours

The total amount of time workers spend directly manufacturing a product or providing a service.

Prototype Testing

The process of evaluating a preliminary model of a product to assess its performance, design, and reliability before it goes into mass production.