SOLUTION: Question 1
Assume that interest rates on 20 year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:
T-bond = 7.72%
AAA=8.72%
A
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Assume that interest rates on 20 year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:
T-bond = 7.72%
AAA=8.72%
A
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Question 115193: Question 1
Assume that interest rates on 20 year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:
T-bond = 7.72%
AAA=8.72%
A= 9.64%
BBB 10.18%
The differences in rates among these issues were most probably caused primarily by
a. Real risk free rate differences
b. Tax effects
c. Default risk differences
d. Maturity risk differences
e. Inflation differences Answer by edjones(8007) (Show Source):
You can put this solution on YOUR website! c.
The higher the likelihood of default the more interest a bond must pay for someone to be willing to buy it.
Ed
