What is the difference between the corporate paper rate and the corporate bond rate?
A) The corporate paper rate refers to interest rates paid on high-quality corporate bonds of relatively short duration (up to 6 months).
B) The corporate paper rate refers to interest rates paid on high-quality corporate bonds of relatively long duration (typically 20 years).
C) The corporate bond rate refers to interest rates paid on long-term (typically 20 year) corporate bonds that may represent varying quality or risk.
D) A and B are correct.
E) A and C are correct.
E
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What is the economic problem?
What will be an ideal response?
Consider estimating a consumption function from a large cross-section sample of households. Assume that households at lower income levels do not have as much discretion for consumption variation as households with high income levels
After all, if you live below the poverty line, then almost all of your income is spent on necessities, and there is little room to save. On the other hand, if your annual income was $1 million, you could save quite a bit if you were a frugal person, or spend it all, if you prefer. Sketch what the scatterplot between consumption and income would look like in such a situation. What functional form do you think could approximate the conditional variance var(ui Inome)? What will be an ideal response?