Which statement does NOT correctly describe bonds? Question 19 options: a. Munic
ID: 1197632 • Letter: W
Question
Which statement does NOT correctly describe bonds? Question 19 options: a. Municipal bonds are used by state and local governments to finance school, roads and other public projects. b.A one-year T-bill with a face value of $1000 and offered at $900 yields an interest rate of 11.1 percent. c.U.S. treasury notes have maturities that range from 2 to 10 years whereas U.S. treasury bonds have maturities of 30 years. d.Corporate bonds are usually issued at a lower rate of interest than government bonds because of their lower risk of default.
Explanation / Answer
Option (d) does not correctly describe bonds.
Reason - Government bonds are considered less risky than coporate bonds. This less risk implies that risk of default with respect to government bonds is much less compared to coporate bonds. Intensity of risk of default plays an important role in determining rate of interest with respect to bonds. As government bonds are less risky or risk of default with respect to government bonds is lower in compariosn to government bonds, rate of interest offered on government bonds is lower in compariosn to corporate bonds and not the other way round.
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