Chapter 6
1
.
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 these rates were probably caused primarily by:
a.
Tax effects.
b.
Default risk differences.
c.
Maturity risk differences.
d.
Inflation differences.
e. Real risk-free rate differences
b
2
.
A bond trader observes the following information:
•
The Treasury yield curve is downward sloping
.
•
Empirical data indicate that a positive maturity risk premium applies to both
Treasury and corporate bonds.
•
Empirical data also indicate that there is no liquidity premium for Treasury
securities but that a positive liquidity premium is built into corporate bond
yields.
On the basis of this information, which of the following statements is most
CORRECT?
a.
A 10-year corporate bond must have a higher yield than a 5-year Treasury
bond.
b.
A 10-year Treasury bond must have a higher yield than a 10-year corporate
bond.
c.
A 5-year corporate bond must have a higher yield than a 10-year Treasury
bond.
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- Fall '10
- Avondstost
- Finance, Interest Rates, Interest, Interest Rate, Yield Curve, a. b. c., b. c. d., C. D. E., maturity risk premium
-
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