How Does the Risk of Long-Term Bonds Compare with Short-Term

question 37

Multiple Choice

How does the risk of long-term bonds compare with short-term bonds?

• A) Long-term bonds are generally less risky than short-term bonds and so pay higher interest.
• B) Long-term bonds are generally less risky than short-term bonds and so pay lower interest.
• C) Long-term bonds are generally more risky than short-term bonds and so pay higher interest.
• D) Long-term bonds are generally more risky than short-term bonds and so pay lower interest.

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Definitions:

Cash Payback Period

The duration it takes for an investment to generate cash flows sufficient to recover the initial investment cost, often used in capital budgeting to assess investment attractiveness.

Payback Period

The length of time required to recover the cost of an investment or project.

Factory Overhead

Factory Overhead includes all indirect costs associated with manufacturing, such as electricity for the factory, maintenance, and salary of the maintenance staff.

Direct Materials

Raw materials that can be directly traced to the production of goods, forming a significant part of manufacturing costs.