AP Macroeconomics Flashcards: Financial Assets
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 11 cards to help you master important concepts.
What is the relationship between the price of previously issued bonds and interest rates?
The price of previously issued bonds and interest rates on bonds are inversely related.
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What is the relationship between the price of previously issued bonds and interest rates?
The price of previously issued bonds and interest rates on bonds are inversely related.
What financial assets can people hold in place of highly liquid money?
People can hold other financial assets like bonds (interest-bearing assets) and stocks (equity) in place of the most liquid forms of money.
Define 'risk' as an attribute of a financial asset.
Risk is an attribute of a financial asset that refers to the uncertainty of its future earnings or the potential for loss of value.
If market interest rates increase, what happens to the price of a bond issued last year?
The price of the previously issued bond will decrease. This is because new bonds offer a higher interest rate, making the older, lower-rate bond less attractive.
What are the most liquid forms of money?
The most liquid forms of money are cash and demand deposits.
Define 'rate of return' as an attribute of a financial asset.
The rate of return is an attribute that measures the earnings or profit generated by a financial asset. For example, bonds are interest-bearing assets that provide a rate of return.
Why does the opportunity cost of holding cash increase when interest rates rise?
When interest rates rise, you forgo a larger potential earning by holding cash instead of an interest-bearing asset like a bond, thus increasing the opportunity cost.
What is liquidity in the context of financial assets?
Liquidity is an attribute describing how easily an asset can be converted into cash. The most liquid forms of money are cash and demand deposits.
What are the three principal attributes of financial assets?
The three principal attributes associated with various classes of financial assets are liquidity, rate of return, and risk.
What is the opportunity cost of holding money?
The opportunity cost of holding money is the interest that could have been earned from holding other financial assets such as bonds.
If market interest rates decrease, what happens to the price of a bond issued last year?
The price of the previously issued bond will increase. This is because its fixed interest rate is now more attractive compared to the lower rates on new bonds.