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:

Question

Quizplus · Accepted Answer

The differences in interest rates between the Treasury bond and the corporate bonds with different credit ratings suggest that default risk differences are the primary cause. Treasury bonds are considered to have no default risk because they are backed by the U.S. government, while corporate bonds with lower credit ratings are considered to have a higher likelihood of defaulting on their debt obligations, which leads investors to demand higher interest rates to compensate for this risk. Tax effects, maturity risk, inflation differences, and real risk-free rate differences may also contribute to interest rate differences, but they are not the primary cause in this case.

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