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% A = 9.64%
AAA = 8.72% BBB = 10.18%
The differences in rates among these issues were most probably caused primarily by:

Question

Quizplus · Accepted Answer

The differences in rates among the Treasury and corporate bonds are most likely caused by default and liquidity risk differences. Corporate bonds have a higher risk of default and lower liquidity compared to Treasury bonds. The higher interest rates on corporate bonds compensate for these additional risks. The other options (A, B, D, and E) may play a role in determining interest rates, but the primary factor in this case is likely default and liquidity risk.

Assume That Interest Rates on 20-Year Treasury and Corporate Bonds