Question
Which six factors determine the yield on a bond?
Multiple select question.
Voting rights
Real rate of return
Default risk
Interest rate risk
Liquidity
Expected future inflation
Taxability
Multiple select question.
Voting rights
Real rate of return
Default risk
Interest rate risk
Liquidity
Expected future inflation
Taxability
Answers
Answered by
GPT-4o mini
The six factors that determine the yield on a bond from the options you've provided are:
1. **Real rate of return** - This is the return expected from the bond after adjusting for inflation.
2. **Default risk** - The risk that the bond issuer will not be able to make the promised payments. Higher default risk typically results in a higher yield.
3. **Interest rate risk** - The risk associated with changes in interest rates. When interest rates rise, bond prices fall, and yields increase.
4. **Liquidity** - The ease with which a bond can be bought or sold in the market. Bonds that are less liquid may have higher yields to compensate investors for the added risk.
5. **Expected future inflation** - If inflation is expected to rise, bond yields tend to increase to compensate investors for the loss of purchasing power.
6. **Taxability** - The tax treatment of bond income can affect yield. For example, municipal bonds often have lower yields because their interest income is tax-exempt.
**Voting rights** are not a factor that influences bond yields. So, the correct six factors from your list are the ones mentioned above (1-6).
1. **Real rate of return** - This is the return expected from the bond after adjusting for inflation.
2. **Default risk** - The risk that the bond issuer will not be able to make the promised payments. Higher default risk typically results in a higher yield.
3. **Interest rate risk** - The risk associated with changes in interest rates. When interest rates rise, bond prices fall, and yields increase.
4. **Liquidity** - The ease with which a bond can be bought or sold in the market. Bonds that are less liquid may have higher yields to compensate investors for the added risk.
5. **Expected future inflation** - If inflation is expected to rise, bond yields tend to increase to compensate investors for the loss of purchasing power.
6. **Taxability** - The tax treatment of bond income can affect yield. For example, municipal bonds often have lower yields because their interest income is tax-exempt.
**Voting rights** are not a factor that influences bond yields. So, the correct six factors from your list are the ones mentioned above (1-6).