The yield differentials between an AAA-rated corporate bond and an otherwise similar BBB-rated corporate bond may be explained by
A) marketability.
B) tax treatment.
C) default risk.
D) term to maturity.

Question

Quizplus · Accepted Answer

The yield differential is primarily due to the difference in default risk, as AAA-rated bonds are considered safer than BBB-rated bonds.

The Yield Differentials Between an AAA-Rated Corporate Bond and an Otherwise