Which of the Following Statements Is CORRECT

question 42

Multiple Choice

Which of the following statements is CORRECT?

• A) Liquidity premiums are generally higher on Treasury than corporate bonds.
• B) The maturity premiums embedded in the interest rates on U.S.Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
• C) Default risk premiums are generally lower on corporate than on Treasury bonds.
• D) Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.
• E) If the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield curve for U.S.Treasury securities would, other things held constant, have an upward slope.

Grasp the amortization processes of bond premium and discount.

Analyze the reporting of bonds on the balance sheet, including the concepts of carrying amount and amortization effects.

Recognize the principles and calculations involved in the time value of money, including present value and annuity calculations.

Understand how market interest rates affect bond prices and the valuation of bonds.

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