Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows:
T-bond = 7.72%
A = 9.64%
AAA = 8.72%
BBB = 10.18%
The differences in rates among these issues were most probably caused primarily by:

Question

Quizplus · Accepted Answer

The primary factor affecting the differences in interest rates among the bonds is the default risk differences associated with each bond's credit rating. The higher the credit rating, the lower the perceived default risk and the lower the interest rate. Conversely, the lower the credit rating, the higher the perceived default risk and the higher the interest rate. The other factors listed (tax effects, maturity risk differences, inflation differences, and real risk-free rate differences) may also play a role in interest rate differentials but are secondary to default risk.

Assume That Interest Rates on 15-Year Noncallable Treasury and Corporate