159 $
© 2014 Pearson Canada Inc.$
Which of the following statements is true?
A) A liquid asset is one that can be quickly and cheaply converted into cash.
B) The demand for a bond declines when it becomes less liquid, decreasing the interest rate
spread between it and relatively more liquid bonds.
C) The differences in bond interest rates reflect differences in default risk only.
D) The corporate bond market is the most liquid bond market.
Answer: A
Diff: 2 Type: MC Page Ref: 116 - 117
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
Corporate bonds are not as liquid as Canada bonds because ____.
A) fewer corporate bonds for any one corporation are traded, making them more costly to sell
B) the corporate bond rating must be calculated each time they are traded
C) corporate bonds are not callable
D) corporate bonds cannot be resold
Answer: A
Diff: 2 Type: MC Page Ref: 116 - 117
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
When Canada bonds become more liquid, other things equal, the demand curve for corporate
bonds shifts to the ____ and the demand curve for Canada bonds shifts to the ____.
A) right; right
B) right; left
C) left; right
D) left; left
Answer: C
Diff: 1 Type: MC Page Ref: 116 - 117
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
A decrease in the liquidity of corporate bonds, other things being equal, shifts the demand
curve for corporate bonds to the ____ and the demand curve for Canada bonds shifts to the
____.
A) right; right
B) right; left
C) left; left
D) left; right
Answer: D
Diff: 1 Type: MC Page Ref: 116 - 117
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates