Which of the Following Statements Is CORRECT

question 20

Multiple Choice

Which of the following statements is CORRECT?

• A) The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.
• B) The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond.
• C) The yield on a 3-year Treasury bond should always exceed the yield on a 2-year Treasury bond.
• D) If inflation is expected to increase,then the yield on a 2-year bond should exceed that on a 3-year bond.
• E) The real risk-free rate should increase if people expect inflation to increase.

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Definitions:

Equity Method

The equity method is an accounting technique used for recording investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investing company’s share of the investee’s profits or losses.

Carrying Value

The original cost of an asset, less any accumulated depreciation, amortization, or impairment costs, representing its value on the balance sheet.

Investment Account

A financial account held at a financial institution that contains securities, cash, and other assets, typically used for investing purposes.

Equity Method

An accounting technique used when a company holds a significant but not controlling investment in another company, recognizing its share of the investee's profits and losses.