The Term Structure of Interest Rates Is Upward Sloping for All

question 29

Multiple Choice

The term structure of interest rates is upward sloping for all bond types. A certain AAA rated non-callable 10-year corporate bond has been issued at a 6.15% promised yield. Which one of the following bonds probably has a higher promised yield?

• A) A similar quality municipal bond.
• B) A non-callable AAA rated corporate bond with a 5-year maturity.
• C) A callable AAA rated corporate bond with a 15-year maturity.
• D) A non-callable AAA rated convertible corporate bond with a 10-year maturity.
• E) All of the above would have a higher promised yield.

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Definitions:

Marginal Revenue Curve

The marginal revenue curve represents the change in total revenue that results from selling one more unit of a product.

Crude Oil Production

The process of extracting oil from underground reservoirs and preparing it for refining into usable products such as gasoline, diesel, and other petrochemicals.

Effective Collusion

coordination between competing firms to control prices or market shares in a way that benefits the entities involved, often at the expense of fair market competition.

Oligopolistic Collusion

When a few firms in an oligopoly market secretly agree to fix prices, limit production, or divide markets among themselves to reduce competition and increase profits.