Final answer:
Visible supply gives the best indication of current interest rates on revenue bonds. The best indication of current interest rates on revenue bonds can be found in visible supply. The correct answer is A.
Step-by-step explanation:
The best indication of current interest rates on revenue bonds can be found in visible supply.
Visible supply refers to the number of bonds that are being offered for sale in the market. If there is a high visible supply, it usually indicates that there is a higher demand for bonds, which can drive down interest rates. On the other hand, if there is a low visible supply, it suggests a lower demand for bonds, which can push interest rates up.
The placement ratio is the best indicator of current interest rates on revenue bonds, as it reflects the demand and interest rate levels. In the given example, with rising market interest rates, an existing bond with a lower interest rate would be expected to sell for less than its face value.
The best indication of current interest rates on revenue bonds can be gleaned from the placement ratio. This metric provides the percentage of newly issued bonds that have been sold or placed with investors, which is reflective of market demand and overall interest rate levels. On the other hand, a visible supply, list of 20 bonds, or list of bonds with 30-year maturities would not offer the same direct insight into current interest rates as they do not provide realtime data on the lending environment.
Regarding your specific scenario, if a local water company issued a $10,000 ten-year bond at an interest rate of 6%, and you consider buying the bond when the market interest rates are now 9%, you would generally expect to pay less than $10,000 for the bond because it offers a lower yield compared to the new market rate. Investors would not be willing to pay the face value for a bond yielding less than the current rates unless the price is adjusted down to match the yield of the prevailing interest rates.