We Would Expect the Interest Rate on Bond a to Be

question 150

Multiple Choice

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

• A)Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
• B)Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
• C)Bond A has a term of 20 years and Bond B has a term of 1 year.
• D)All of the above are correct.

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Definitions:

Principal

The original sum of money borrowed in a loan, or the original amount invested, excluding any interest or dividends.

Accounts Receivable

Money owed to a business by its clients for goods or services delivered but for which payment has not yet been received.

Credit

An accounting entry that increases the balance of liabilities and equity accounts, and decreases the balance of assets accounts. It is also the provision of resources (such as money) by one party to another with the expectation of repayment.

Accrued Interest

Interest that has accumulated over a period but has not yet been paid or officially recorded.