Suppose There Is a Reduction of the Return Provided on U.S.Treasury

question 105

Multiple Choice

Suppose there is a reduction of the return provided on U.S.Treasury bonds.We should expect the current price of stocks to:

• A)increase since the risk-free return is now lower.
• B)decrease since U.S.Treasury bonds are safer.
• C)increase since the risk premium on the stocks will increase.
• D)stay the same; there is no effect on stock prices from this reduction.

Analyze the effects of trade credits on a firm's financial management.

Evaluate the financial risks associated with short-term versus long-term borrowing.

Understand the concepts of policy lags and their types (decision-making lag, implementation lag, effectiveness lag, and recognition lag) in macroeconomic policy.

Distinguish between active and passive policy approaches and their implications on the economy.

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