Interest rate differentials at a certain point in time may be expressed by comparing the interest rates on:
A)a Treasury bill and a Treasury bond
B)a Treasury bill and a long-term corporate bond
C)a Treasury bill and the commercial paper rate
D)a risky security and a comparable maturity U.S.Treasury security

Question

Quizplus · Accepted Answer

Interest rate differentials are typically measured by comparing a risky security with a comparable maturity U.S. Treasury security. This is because the risk premium on the risky security will be reflected in the higher interest rate it offers compared to the risk-free U.S. Treasury security. Choices A, B, and C do not involve risky securities and therefore are not the best choice for measuring interest rate differentials.

Interest Rate Differentials at a Certain Point in Time May