Assume that interest rates on 20-year Treasury and corporate bonds with different ratings,all of which are noncallable,are as follows:

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:
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 The differences in rates among these issues were most probably caused primarily by:

Quizplus · Accepted Answer

The differences in rates among Treasury and corporate bonds with different ratings are primarily caused by default and liquidity risk differences. Treasury bonds are considered to have no default risk and are highly liquid, while corporate bonds with lower ratings have a higher probability of default and are less liquid, which results in higher interest rates. Real risk-free rate differences, tax effects, maturity risk differences, and inflation differences may also affect interest rates, but they are not the primary drivers of the differences among Treasury and corporate bonds.

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