When the coupon rate on newly issued bonds decreases relative to ...

[crazycityslicker]

When the coupon rate on newly issued bonds decreases relative to older, outstanding bonds, what happens?
 
  A) Older bonds will sell for more than their face value.
  B) Older bonds can still be sold at their face value.
  C) The market price of the older bond falls in the secondary market.
  D) The market price of the older bond rises in the secondary market.

Question 2

Refer to Figure 5-16. Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.
 
  Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?
  A) The optimal quantity will be installed only if Bree pays for the entire installation cost.
  B) The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves.
  C) Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed.
  D) The optimal quantity will be installed only if the two parties split the cost of installation equally.

[shaquita]

Answer to Question 1

D

Answer to Question 2

C