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:

Share-based Payment

Transactions in which an entity receives goods or services as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares.

AASB 2

The Australian Accounting Standards Board standard that specifies the financial reporting requirements for entities dealing with share-based payment transactions.

Incremental Fair Value

The additional value that is estimated to arise from a particular transaction or event over the current fair value of an asset or liability.

Share-based Payment

A way companies compensate employees or purchase goods and services by issuing shares of the company or options to buy shares, instead of cash.