3. Secondary bond market Which of the following best explains the existence of the secondary market...
3. Secondary bond market
Which of the following best explains the existence of the secondary market for bonds?
A- Bondholders may not wish to hold onto bonds until maturity and therefore may sell them for cash.
B- Foreign investors always seek to buy more government bonds.
C- The government must always sell some bonds to cover its budget deficits.
D- Bondholders must hold onto bonds until they mature.
Suppose the interest payments and face value of bonds don’t change. As the price of the bond sold in the bond market increases, the rate of return (or yield) __________( declines / rises / remains the same)
Homework Answers
Answer) option A is the correct answer. Secondary bond market refers to the sale and purchase of bond by investors in the market post the initial public offering.
The bond prices and bond yield move in the opposite direction. A rise in the price of bond would result into a fall in yield as they investors are lacking confidence in the financial credibility.
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