Assume that the Treasury bond yield today is 2% higher than it was one year ago. Also assume that the credit (default) risk premium of an A-rated bond declined by 0.4% since one year ago. A newly issued A-rated bond will likely offer a yield today that is ____ the yield that was offered on an A-rated bond issued one year ago.
A)greater than
B)equal to
C)less than
D)A or B are both common

Question

Quizplus · Accepted Answer

The yield on the A-rated bond today is likely greater than a year ago because the increase in the Treasury bond yield (2%) is larger than the decrease in the credit risk premium (0.4%), resulting in a net increase in yield.

Assume That the Treasury Bond Yield Today Is 2% Higher