Question

The following three true/false questions pertain to bond risk:

Question 1/4 - Bond Risk: True or False: Higher risk bonds will receive a lower rating by bond-rating agencies.

2. True or False: Investors will expect higher returns on higher-risk bonds than on lower-risk bonds.

3. True or False: All else equal, the longer a bond’s term, the higher the bond’s risk.

4. True or False: Generally, loans investors make to the United States government (through Treasury Bills and Treasury Notes) are among the highest-risk bonds existing in the market.

Answer 1

Question 1 The correct answer is True

Higher risk bonds will receive lower rating by bond rating agencies, and lower risk bond will receive higher rating by bond rating agencies. Hence statement is True

2) The correct answer is True

Investors will expect higher returns on higher-risk bonds than on lower-risk bonds, higher the risk higher the expected return vice versa. Hence statement is True

3) The correct answer is True

A longer-term bond carries greater risk that higher inflation could reduce the value of payments, as well as greater risk that higher overall interest rates could cause the bond's price to fall, therefore all else equal, the longer a bond’s term, the higher the bond’s risk.

4) The correct answe is False

Since, loans investors make to the United States government (through Treasury Bills and Treasury Notes) are among the safest bonds not the highest-risk bonds existing in the market.

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