Assume the Bonds Below Have the Same Term and Principal

question 28

Multiple Choice

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating.Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

• A)corporate bond,municipal bond,U.S.government bond
• B)corporate bond,U.S.government bond,municipal bond
• C)municipal bond,U.S.government bond,corporate bond
• D)U.S.government bond,municipal bond,corporate bond

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates greater volatility than the market.

Heterogeneous Expectations

A financial theory assumption that different investors have varied predictions about future market or asset performance.

Holding Period

The duration between the purchase and sale of a security or investment.

Price Takers

Parties in a market who accept prevailing prices because they have no power to influence the market price due to their small scale of operations or the competitive nature of the market.