Suppose Two Corporate Bonds with Similar Risk Pay Different Rates

question 108

Multiple Choice

Suppose two corporate bonds with similar risk pay different rates of return. The process of arbitrage should

• A) not affect their rates of return.
• B) increase the return on the asset with the higher rate of return as the demand for it increases.
• C) increase the gap between the two rates of return.
• D) eventually equalize their rates of return.

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Definitions:

Sales Presentation

A pitch or demonstration given to potential customers to introduce a product or service and persuade them to make a purchase.

Reseller

An entity or person that buys products or services to sell them on, rather than to use or consume them personally.

Conviction

A firmly held belief or a legal judgement where someone is found guilty of a crime.

Mental Step

A cognitive phase in the decision-making or problem-solving process that involves mental activities such as thinking, understanding, or planning.