Question

You would expect a bond of the U.S. government and a bond of an Eastern European government to pay different interest rates because of differences in the bonds’ (Credit risk/ tax treatment/ term ).
You would expect a bond that repays the principal in year 2040 to pay (the same/ higher/ lower ) interest rate as compared to a bond that repays the principal in year 2020.

You would expect a bond from a software company you run in your garage and a bond from Coca-Cola to pay different interest rates because of differences in the bonds’ (Credit risk/ tax treatment/ term ).

You would expect a bond issued by the federal government to pay (the same/ higher/ lower ) interest rate as compared to a bond issued by New York State.

Answer 1

Answer:

We would expect a bond of the U.S government and a bond of an Eastern European government to pay interest rates because of differences in the bonds credit risk . As the bond of an Eastern European government would pay a higher interest rate than the bond of the U.S government bond because there would be a greater risk of default.

We would expect a bond that repays the principal in year 2040 to pay the higher interest rate as compared to a bond that repays the principal in year 2020.

We would expect a bond from a software company we run in our garage and a bond from Coca-Cola to pay different interest rates because of differences in the bonds credit risk. As a bond from a software company run in the garage would pay a higher interest rate than a bond from Coca-Cola because software company has more credit risk.

We would expect a bond issued by the federal government to pay the higher interest rate as compared to a bond issued by the New York state because an investor does not have to pay federal income tax on the bind from New York state.

This higher interest is soley due to federal tax.