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The Federal Government decides that it would like to subsidize a solar energy company called Half- Baked. The government does this by guaranteeing Half-Baked's bonds
The Federal Government decides that it would like to subsidize a solar energy company called "Half- Baked." The government does this by guaranteeing Half-Baked's bonds from default. That is to say, if an investor buys a Half-Baked bond, and Half-Bake goes bankrupt, the government will pay the investor the amount on the bonds. Based on this information, you would expect the interest rate on Half-Baked bonds to
A. increase after the government provides the guarantee.
B. decrease after the government provides the guarantee.
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