Which of the Following Is True Concerning Interest Rates on Bonds

question 203

Multiple Choice

Which of the following is true concerning interest rates on bonds?

• A)Because of the tax advantage, municipal bonds pay higher interest rate than other bonds.High default risk makes the interest rate on a bond higher than otherwise.
• B)Because of the tax advantage, municipal bonds pay higher interest rate than other bonds.High default risk makes the interest rate on a bond lower than otherwise.
• C)Because of the tax advantage, municipal bonds pay lower interest rate than other bonds.High default risk makes the interest rate on a bond higher than otherwise.
• D)Because of the tax advantage, municipal bonds pay lower interest rate than other bonds.High default risk makes the interest rate on a bond lower than otherwise.

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Definitions:

Forward Contract

An agreement that isn't standardized between two parties to purchase or sell an asset at a future date determined today at a price agreed upon today.

Legally Binding

An agreement enforceable by law, with obligations that must be fulfilled by all parties involved.

Agreed-upon Price

The price that has been mutually accepted by the buyer and seller in a transaction.

Risk Profile

An evaluation of an individual's or organization's willingness to take risks, as well as their ability to handle the consequences of those risks.