Question

What will happen in the bond market if the government imposes a limit on the amount of daily​ transactions? Which characteristic of an asset would be​ affected?

A.Liquidity of bonds relative to other assets will​ decrease, increasing the interest rate and lowering​ bond's prices.
B.Liquidity of bonds relative to other assets will​ increase, decreasing the interest rate and lowering​ bond's prices.
C.Riskiness of bonds relative to other assets will​ decrease, increasing the interest rate and increasing​ bond's prices.
D.Riskiness of bonds relative to other assets will​ increase, decreasing the interest rate and increasing​ bond's prices.

Answer 1

A.Liquidity of bonds relative to other assets will​ decrease, increasing the interest rate and lowering​ bond's prices.

Step-by-step explanation:

As the bonds have a maximum amount of daily transactions, each transaction reduces the liquidity of the bonds as they will not be converted to cash once the maximum threshold comes into play.