Everything Else Held Constant,if the Tax-Exempt Status of Municipal Bonds

question 88

Multiple Choice

Everything else held constant,if the tax-exempt status of municipal bonds were eliminated,then

• A)the interest rates on municipal bonds would still be less than the interest rate on Treasury bonds.
• B)the interest rate on municipal bonds would equal the rate on Treasury bonds.
• C)the interest rate on municipal bonds would exceed the rate on Treasury bonds.
• D)the interest rates on municipal,Treasury,and corporate bonds would all increase.

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Definitions:

Systematic Risk

The risk inherent to the entire market or a segment thereof, also known as market risk, which cannot be eliminated through diversification.

Stock Market

A public market for buying, selling, and trading stocks (shares) of publicly-held companies.

Alpha

A measure of the excess return of an investment relative to the return of a benchmark index.

Actual Return

The real gain or loss experienced on an investment, typically expressed as a percentage of the investment's initial cost.