Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following situations is most likely?
A)The 6 percent bond is less risky than the 3 percent bond.
B)The 6 percent bond is a Canadian government bond, and the 3 percent bond is a junk bond.
C)The 6 percent bond has a longer term than the 3 percent bond.
D)The 6 percent bond is a Canadian government bond, and the 3 percent bond is a provincial bond.

Question

Quizplus · Accepted Answer

Generally, when a bond has a higher interest rate, it means that it also has a longer term or is riskier. Therefore, it is most likely that the 6 percent bond has a longer term than the 3 percent bond.

Jerry Has the Choice of Two Bonds, One That Pays