ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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higher return rate
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shorter time period
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lower price at time of purchase
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provides interest payments
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Detailed explanation-1: -U.S. savings bonds are a form of government debt issued to American citizens to help fund federal expenditures. Savings bonds are sold at a discount and mature to their full face value, and do not pay regular coupon interest.
Detailed explanation-2: -For instance, consider a $1, 000 bond that has a 5% coupon. Its current yield is 5%, or $50 / $1000. If the market interest rate paid on other comparable investments is 6%, no one is going to purchase the bond at $1, 000 and earn a lower return for their money. The price of the bond then drops on the open market.
Detailed explanation-3: -The price for a bond or a note may be the face value (also called par value) or may be more or less than the face value. The price depends on the yield to maturity and the interest rate. The “yield to maturity” is the annual rate of return on the security.
Detailed explanation-4: -When the Federal Reserve buys bonds, bond prices go up, which in turn reduces interest rates. Open market purchases increase the money supply, which makes money less valuable and reduces the interest rate in the money market.