Which of the Two Bonds in Each Example Would You

question 127

Essay

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a U.S.government bond or a Venezuelan government bond
b.a U.S.government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.a 6-month Treasury bill or a 20-year Treasury bond
d.a Microsoft bond or a bond issued by a new recording company

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Definitions:

Mean

The average of a set of numbers, calculated by dividing the sum of all values by the total number of values.

Standard Normal Curve

A type of normal distribution that has a mean of 0 and a standard deviation of 1, represented graphically as a bell-shaped curve.

Area

A measure of the extent of a surface or shape, expressed in square units.

Z-score

An indicator that shows the number of standard deviations a particular value is away from the average.