An investor plots the yield curve for AAA corporate bonds and discovers that the yield on BGA Inc.'s bonds is above that of other AAA corporate bonds with the same maturity. If BGA Inc.'s bonds are correctly classified as AAA, the investor will profit by:

Question

Quizplus · Accepted Answer

The higher yield on BGA Inc.'s AAA bonds compared to other AAA bonds of the same maturity suggests they are undervalued. Buying these bonds and selling them when the yield falls (which implies the price rises) would result in a profit.

An Investor Plots the Yield Curve for AAA Corporate Bonds