Some universities now offer tuition bonds. Parents can purchase a bond at the time their child is born. The bond is redeemable in 18 years for an amount of money equal to the cost of the university's tuition at that time. Which of the following would reduce the market price of these bonds?A) An increase in the rate of interestB) A decrease in the rate of interestC) The passage of legislation limiting increases in college tuition to the rate of inflationD) both A and CE) both B and C

Question

Some universities now offer tuition bonds. Parents can purchase a bond at the time their child is born. The bond is redeemable in 18 years for an amount of money equal to the cost of the university's tuition at that time. Which of the following would reduce the market price of these bonds?A)  An increase in the rate of interestB)  A decrease in the rate of interestC)  The passage of legislation limiting increases in college tuition to the rate of inflationD)  both A and CE)  both B and C

Ozoda Radjabova · Accepted Answer

Final Answer : D, Explanation :  An increase in the rate of interest would make alternative investments more attractive compared to the tuition bonds, reducing their market price. Legislation limiting tuition increases to the rate of inflation could make the bonds less valuable if tuition costs were expected to increase at a rate higher than inflation, also reducing their market price.

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