The reason for a difference in the yield between a Aaa corporate bond and an otherwise identical Baa bond is the risk premium; the real interest rate and the inflation rate is the same for both.

Question

Quizplus · Accepted Answer

The yield difference is due to the risk premium, as Aaa bonds have a higher credit rating and lower risk compared to Baa bonds, while the real interest rate and inflation rate remain constant for both.

The Reason for a Difference in the Yield Between a Aaa