Question

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that:___________

a. Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.

b. Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.

c. Bond A has a term of 1 year and Bond B has a term of 5 years.

d. All of the above are correct.

Answer 1

The option (d) is correct

Step-by-step explanation:

Solution

From the given question, option (d) is correct because Bond A has a lower term of maturity, issued by a financially weak corporation and compared to government security it is offering lower returns implies it has a lower interest rate than bond B having identical characteristics expect the above.