Increases in the basic cost of long-term funds or in risk will raise the required return on a bond.

Question

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An increase in the basic cost of long-term funds, which is typically measured by the yield on government bonds, or an increase in the perceived risk of a bond will raise the required return on that bond. This is because investors will demand a higher return for taking on greater risk or for giving up the opportunity to invest in lower-risk alternatives that have become more attractive due to higher yields.

Increases in the Basic Cost of Long-Term Funds or in Risk