Which of the following bonds has the highest interest rate?Group of answer choicesA high credit risk and a short termA low credit risk and a short termA long term and a high credit riskA long term and a low credit risk
Question
Which of the following bonds has the highest interest rate?Group of answer choicesA high credit risk and a short termA low credit risk and a short termA long term and a high credit riskA long term and a low credit risk
Solution
The bond with the highest interest rate would typically be the one with a high credit risk and a long term. This is because the higher the credit risk, the higher the interest rate must be to compensate for that risk. Similarly, the longer the term of the bond, the higher the interest rate must be to compensate for the increased risk of changes in the market over a longer period of time. So, the answer is "A long term and a high credit risk".
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