Two Bonds Have the Same Term to Maturity

question 34

Multiple Choice

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

• A)Because they have the same term to maturity the interest rates should be the same.
• B)Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate.
• C)Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.
• D)It is not possible to say if one bond has a higher interest rate than the other.

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Definitions:

Anal Warts

Small growths or bumps that appear around the anus, caused by the human papillomavirus (HPV).

Anal Cancer

is a type of cancer in which malignant cells are found in the tissues of the anus, often linked to human papillomavirus (HPV) infection.

Develop

To grow or cause to grow and become more mature, advanced, or elaborate through processes or stages.

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A rare form of cancer that originates in the skin or tissues of the penis, often marked by visible changes or sores.