Some universities now offer "tuition bonds." Parents can purchase a bond at the time their child is born. The bond is redeemable in 18 years for an amount of money equal to the cost of the university's tuition at that time. Which of the following would reduce the market price of these bonds?

Question

Quizplus · Accepted Answer

An increase in the rate of interest would make alternative investments more attractive compared to the tuition bonds, reducing their market price. Legislation limiting tuition increases to the rate of inflation could make the bonds less valuable if tuition costs were expected to increase at a rate higher than inflation, also reducing their market price.

Some Universities Now Offer "Tuition Bonds