You Are Thinking of Buying a Bond from Bluestone Corporation

question 13

Multiple Choice

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

• A)The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
• B)The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
• C)Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
• D)Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.

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Definitions:

Law of Demand

Economic principle stating that as the price of a good increases, the quantity demanded decreases, and vice versa, ceteris paribus.

Ticket Prices

The cost at which an individual can purchase a ticket to gain entry to an event, such as a concert, movie, or sports game.

Input Costs

Expenses incurred by firms for purchasing the raw materials, labor, and other inputs required for the production of goods or provision of services.

Gasoline

A combustible fluid obtained from petroleum, mainly utilized as a fuel for internal combustion engines.