If you lend money to the government by buying a one-year Treasury bill,your interest rate is 4%,but if you lend money to XYZ Corporation by buying a one-year XYZ bond,you can earn 7%.What is the main reason for this difference in interest rates?

Question

Quizplus · Accepted Answer

The main reason for the difference in interest rates is the higher default risk associated with the XYZ bond compared to the government Treasury bill. Investors demand a higher return for taking on the additional risk of lending to a corporation, which may have a higher chance of defaulting compared to the government.

If You Lend Money to the Government by Buying a One-Year