What will happen to interest rates on a corporation’s bonds if the federal gover

Question

What will happen to interest rates on a corporation’s bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future?
What will happen to interest rates on a corporation’s bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future?
What will happen to interest rates on a corporation’s bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future?
What will happen to interest rates on a corporation’s bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future?

Explanation / Answer

Answer : The guarantee given by the government will reduce the risk on corporate bonds make them more desirable then treasury securities .The increased demand for corporate bonds and decrease demand for securities will lower interest rate on corporate Bond and increases on treasury bonds.

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