Sus US Ca US 0 Consider Figure 4-1, which shows the supply and demand for US Tre
ID: 1142276 • Letter: S
Question
Sus US Ca US 0 Consider Figure 4-1, which shows the supply and demand for US Treasury Securities (Sus and Dus) and for Charter Corp. bonds (Sc and Dc), as well as the corresponding equilibrium price (Pus and Pc). What is the most likely reason that the market price for US Treasury Securities is higher than the market price for Charter Corp. bonds? O a. There is a higher risk that Charter Corp. will default on its obligation O b. The US government has a monopoly on US Treasury securities c. There is a lower risk that Charter Corp. will default on its obligation. O d. There is a higher risk that the US Treasury will default on its obligation.Explanation / Answer
The higher the risk for a bond to default the higher interest rate it gets and at a higher interest rate the bond price will be low.
US treasury bonds have fewer chances of default so the interest rate will be low and the price will be high. The answer is "A", there is a higher risk that Charter Corp. will default on its obligation.
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