Which of the following is true concerning interest rates on bonds?
A)Because of the tax advantage, municipal bonds pay higher interest rate than other bonds.High default risk makes the interest rate on a bond higher than otherwise.
B)Because of the tax advantage, municipal bonds pay higher interest rate than other bonds.High default risk makes the interest rate on a bond lower than otherwise.
C)Because of the tax advantage, municipal bonds pay lower interest rate than other bonds.High default risk makes the interest rate on a bond higher than otherwise.
D)Because of the tax advantage, municipal bonds pay lower interest rate than other bonds.High default risk makes the interest rate on a bond lower than otherwise.

Question

Quizplus · Accepted Answer

Municipal bonds typically offer lower interest rates compared to other bonds due to their tax-exempt status, making them more attractive to investors in higher tax brackets. Additionally, bonds with a high default risk must offer higher interest rates to compensate investors for the increased risk of losing their investment.

Which of the Following Is True Concerning Interest Rates on Bonds