The major factor(s) affecting the cost, or interest rate, on a bond is (are) its
A) maturity.
B) size of the offering.
C) issuer risk.
D) basic cost of money.
E) all of the above.

Question

Quizplus · Accepted Answer

All of the above factors can affect the cost or interest rate on a bond. Maturity can impact the interest rate as longer-term bonds typically have higher rates due to the increased risk of inflation and uncertainty over a longer period of time. The size of the offering can also affect the interest rate as larger offerings may be more attractive to investors and therefore require a lower interest rate. Issuer risk, or the creditworthiness of the company issuing the bond, can greatly impact the interest rate as investors will demand higher rates for riskier investments. Finally, the basic cost of money, or the prevailing interest rates in the market, will also affect the interest rate on a bond.

The Major Factor(s) Affecting the Cost, or Interest Rate, on a Bond