ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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reduce the risk that interest rates will fall before they pay off their debt
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reduce the risk that interest rates will rise before they pay off their debt.
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reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments
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reduce total interest payments over the life of the debt
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Detailed explanation-1: -The primary reason that individuals and firms choose to borrow long-term is to reduce the risk that interest rates will rise before they pay off their debt.
Detailed explanation-2: -The primary issuers of capital market securities are federal and local governments and corporations. The federal government issues long-term notes and bonds to fund the national debt. Corporations may enter the capital markets because they do not have sufficient capital to fund their investment opportunities.
Detailed explanation-3: -In the primary market, there are four key players: corporations, institutions, investment banks, and public accounting firms.
Detailed explanation-4: -20) (I) The coupon rate is the rate of interest that the issuer of the bond must pay. (II) The coupon rate on old bonds fluctuates with market interest rates so they will remain attractive to investors.