The Government

question 26

Multiple Choice

The government:

• A) sets most interest rates.
• B) is a net lender (or supplier of loanable funds).
• C) is a net borrower (or demander of loanable funds).
• D) determines the "federal risk premium" portion of commercial interest rates.
• E) earns more interest on treasury bills and other securities when interest rates rise.

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Definitions:

Coupon Rate

The interest rate stated on a bond or other fixed-income security, representing the annual interest paid by the issuer to the bondholder.

Convertible Bond

This is a bond that provides the holder the ability to convert it into a set number of shares of the issuer's stock at agreed-upon times over the bond's term, often by the choice of the investor.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Discount Bond

A bond that is sold for less than its face value.