Economics | Corporate Bonds

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Corporate Bonds And Risk

April 6th, 2006

corporate bonds and risk
Question: The differences in rates among these issues were caused primarily by _________.?

Assume that interest rates on 20-year Treasury and Corporate Bonds are as follows:

T-bond = 7.72%
AAA = 8.72%
A = 9.64%
BBB = 10.18%

The differences in rates among these issues were caused primarily by _________.

a. tax effects
b. default risk differences.
c. maturity risk differences.
d. inflation differences.
e. real risk-free rate differences.

Answer: b. Default risk differences.

Municipal Bonds Vs. Corporate Bonds