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The interest rate on tax-exempt bonds rises relative to the interest rate on U.S. Treasury
securities when ____.
A) income tax rates are raised
B) tax-exempt bonds become more widely traded
C) corporate bonds become riskier
D) income tax rates are lowered
Answer: D
Diff: 3 Type: MC Page Ref: 117 - 118
Skill: Recall
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
Tax-exempt bond interest rates increase relative to corporate bond interest rates when
____.
A) income taxes are increased
B) corporate bonds become riskier
C) U.S. Treasury securities become more widely traded
D) there is a major default in the tax-exempt bond market
Answer: D
Diff: 3 Type: MC Page Ref: 117 - 118
Skill: Recall
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
If income tax rates were lowered, then ____.
A) the interest rate on tax-exempt bonds would fall
B) the interest rate on U.S. Treasury bonds would rise
C) the interest rate on tax-exempt bonds would rise
D) the price of Canada bonds would fall
Answer: C
Diff: 2 Type: MC Page Ref: 117 - 118
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
If income tax rates were lowered, then ____.
A) the prices of tax-exempt bonds would fall
B) the interest rate on tax-exempt bonds would fall
C) the interest rate on U.S. Treasury bonds would rise
D) the prices of tax-exempt bonds would rise
Answer: A
Diff: 2 Type: MC Page Ref: 117 - 118
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates