Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: $$\begin{array} { l l }
\text { T-bond } = 7.72 \% & \mathrm {~A} = 9.64 \% \
\mathrm { AAA } = 8.72 \% & \mathrm { BBB } = 10.18 \%
\end{array}$$ The differences in rates among these issues were most probably caused primarily by:

Question

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: $$\begin{array} { l l } 
\text { T-bond } = 7.72 \% & \mathrm {~A} = 9.64 \% \
\mathrm { AAA } = 8.72 \% & \mathrm { BBB } = 10.18 \%
\end{array}$$ The differences in rates among these issues were most probably caused primarily by:

Quizplus · Accepted Answer

The differences in interest rates among these bonds are primarily due to default and liquidity risk differences, as corporate bonds have higher risk compared to Treasury bonds, which are considered risk-free.

Assume That Interest Rates on 20-Year Treasury and Corporate Bonds T-bond =7.72% A=9.64%AAA=8.72%BBB=10.18%\begin{array} { l l } \text { T-bond } = 7.72 \% & \mathrm {~A} = 9.64 \% \\\mathrm { AAA } = 8.72 \% & \mathrm { BBB } = 10.18 \%\end{array} T-bond =7.72%AAA=8.72%​ A=9.64%BBB=10.18%​

Assume That Interest Rates on 20-Year Treasury and Corporate Bonds $\begin{array} { l l } \text { T-bond } = 7.72 \% & \mathrm {~A} = 9.64 \% \\\mathrm { AAA } = 8.72 \% & \mathrm { BBB } = 10.18 \%\end{array}$