The bonds' value is not affected by inflation because most bonds pay a fixed coupon rate over time. The credit ratings of the bond-issuing companies will not change from one year to the next. The bond issuer may not pay him back because i
The bonds' value is not affected by inflation because most bonds pay a fixed coupon rate over time. The credit ratings of the bond-issuing companies will not change from one year to the next. The bond issuer may not pay him back because i
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Rohan decides to invest in bonds instead of stocks because he has heard that bonds are a lower-risk investment. He uses the bond's credit rating to make his investment decisions.
Which of the following is true about the risk Rohan faces with his decision?
-
The bonds' value is not affected by inflation because most bonds pay a fixed coupon rate over time.
-
The credit ratings of the bond-issuing companies will not change from one year to the next.
-
The bond issuer may not pay him back because it may go bankrupt or become insolvent.
-
If Rohan chooses bonds from a company with low credit ratings, he's almost certain to have low default risk.
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