Assume that you observe the following rates on long-term bonds: U.S.Treasury bonds = 4.15 percent AAA
Corporate bonds = 6.2 percent BBB
Corporate bonds = 7.15 percent
The main reason for the differences in the interest rates is:

Question

Quizplus · Accepted Answer

The differences in interest rates among U.S. Treasury bonds, AAA corporate bonds, and BBB corporate bonds primarily reflect the default risk premium. U.S. Treasury bonds are considered risk-free in terms of default, while corporate bonds carry a higher risk of default, with the risk increasing from AAA to BBB rated bonds. This risk is compensated by higher interest rates.

Assume That You Observe the Following Rates on Long-Term Bonds