Suppose the Average Interest Rate on Euro Bonds Is 4

question 34

Multiple Choice

Suppose the average interest rate on euro bonds is 4%, and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose?

• A) neither-bonds have high default rates
• B) both-an investor will choose some euro bonds and some U.S. bonds to diversify
• C) the euro bond because their economies are usually more stable
• D) It is not possible to answer without information on exchange rates.

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Definitions:

Perennial

Describes plants that live for more than two years or streams that flow continuously throughout the year.

Gradient

A rate of inclination or slope, or the rate at which a physical quantity changes with respect to change in another quantity.

Cross-sectional Area

The area of a particular section of an object or material that is exposed when it is cut through by a plane.

Deposition

The geological process by which sediments, soil, and rocks are added to a landform or landmass, often carried by wind, water, or ice.