Explain why the market for taxable municipal bonds competes for investors with the corporate bond market
What will be an ideal response?
Like the corporate bond market, taxable municipal bonds are bonds whose interest is taxed at the federal income tax level. Thus, investors are going to look at the risk and return trade-off to determine which bond they prefer. Because there is no tax advantage, investors will expect
a higher return for a lower rated bond regardless of whether it is a municipal or corporate bond. For either a municipal or corporate bond, their yields must be higher than for another tax-exempt municipal bond. Also, their yields must be higher than the yield on U.S. government bonds because an investor faces credit risk by investing in either bond.
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Long-term forecasts are usually less accurate than short-term forecasts because
A) short-term forecasts have a larger standard deviation of error relative to the mean than long-term forecasts. B) short-term forecasts have more standard deviation of error relative to the mean than long-term forecasts. C) long-term forecasts have a smaller standard deviation of error relative to the mean than short-term forecasts. D) long-term forecasts have a larger standard deviation of error relative to the mean than short-term forecasts.
Annuity payments will adjust for inflation over the years of retirement
Indicate whether this statement is true or false.