Question

Other things the same, which bond would you expect to pay the lowest interest rate?

a) a bond issued by Nabisco
b) a bond issued by a fairly new company doing genetic research
c) a bond issued by a state with a very good credit rating
d) a bond issued by the U.S. government

Answer 1

d) a bond issued by the U.S. government

Step-by-step explanation:

A bond issued by the US government will be expected to pay the lowest interest rate because the default risk is almost 0 with the US government which means that it is a risk free investment for the lender. The investor will be willing to lend money to US government at the lowest interest rate out of all the options because it is the safest investment therefore the investor's required rate of return is the lowest for US government.