Relative to long-term corporate bonds, long-term government bonds (T-bonds) report a higher standard deviation and a lower return. What best explains this observation?
A) The observation reflects a market inefficiency.
B) T-bonds are less liquid than corporate bonds.
C) T-bonds are more commonly callable than corporate bonds.
D) T-bonds pay interest that is exempt from state and local income taxes.

Question

Quizplus · Accepted Answer

T-bonds typically have lower returns because they are considered safer investments, and their interest is exempt from state and local taxes, making them attractive despite lower returns. The higher standard deviation is not typical for T-bonds compared to corporate bonds, so the statement may be misleading.

Relative to Long-Term Corporate Bonds, Long-Term Government Bonds (T-Bonds) Report