A bond identifies the date of maturity and the rate of interest that will bepaid periodically until the loan matures.c. One important characteristic that determines a bond's value is its term.The term is the length of time until the bond matures. All else beingequal, long-term bonds pay higher rates of interest than short-termbonds.d. Another important characteristic of a bond is its credit risk, which is theprobability that the borrower will fail to pay some of the interest orChapter 13, Saving, Investment, and the Financial System) 241principal. All else being equal, the more risky a bond is, the higher itsinterest rate.e. A third important characteristic of a bond is its tax treatment. Forexample, when state and local governments issue bonds (calledmunicipal bonds), the interest income earned by the holders of thesebonds is not taxed by the federal government. This makes the bondsmore attractive, lowering the interest rate needed to entice people tobuy them
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