How can a bond mutual fund report a return of over 13% when the coupon rate of the bonds they are holding are just 7% and interest rates are falling?
What will be an ideal response?
The bond mutual fund is advertising its holding period return. As illustrated in the text, if a 20-year, 7-percent coupon bond with a face value of $100 is sold before maturity when interest rates have fallen to 6.5%, the price of that bond will rise to $106.50. The $6.50 of capital gain plus the $7.00 coupon payment represent a one-year holding period return of 13.5%. As the text notes, this is why past performance cannot guarantee future returns; if rates rise instead of fall the holding period return will not be as favorable.
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he United States' economy was most depressed in
A. 1923. B. 1933. C. 1943. D. 1953.
The decision to make the U.S. income tax system progressive was
A) a positive decision. B) a normative decision. C) a decision that was needed to minimize the excess burden of taxation. D) a progressive decision.
If a monopolistically competitive firm raises its price, it
a. loses all of its customers (sales drop to zero) b. loses some, but not all, of its customers c. loses very few customers d. loses no customers at all e. gains customers (sales increase)
Which one of the following is NOT included in GDP?
A. You give up a weekend of leisure to repair your roof yourself. B. You purchase $20 worth of first aid supplies at the local drugstore to treat the cuts and scrapes you suffered while crawling around on the roof. C. You pay a roofer $2,000 to repair your roof after you discover leaks have appeared due to normal wear and tear. D. You pay a roofer $2,000 to repair your roof after it is damaged in a hailstorm.