Which of the following statements about the term of a bond is correct?
A)Term refers to the various characteristics of a bond,including its interest rate and tax treatment.
B)The term of a bond is determined entirely by its credit risk.
C)The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
D)Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question

Quizplus · Accepted Answer

The term of a bond refers to the length of time until the bond matures or the principal is repaid. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds because there is more risk associated with holding a bond for a longer period of time. Therefore, investors expect to be compensated with a higher yield for taking on that risk. The term of a bond is not determined by its credit risk or sales charge. The term is a characteristic of the bond itself.

Which of the Following Statements About the Term of a Bond