Which of the following statements is TRUE?
A) The more liquid the bond, the lower the yield.
B) Tax-free bonds normally have a higher interest rate than other types of bonds.
C) The price of a bond increases as it becomes more risky.
D) The yield curve illustrates the relative default risks of alternative types of bonds.

Question

Quizplus · Accepted Answer

Liquidity in the bond market generally leads to lower yields because investors are willing to accept lower returns for the convenience of being able to buy or sell the bond easily.

Which of the Following Statements Is TRUE