The following figure shows the BAA corporate and 10-Year Treasury Bond yields. Refer to this figure when answering
Figure 14.1: BAA and 10-Year Bonds, 2006-2010
(Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-In Figure 14.1 above, the 10-year bond yield is considered ________, while the BAA bond yield represents ________.

Question

The following figure shows the BAA corporate and 10-Year Treasury Bond yields. Refer to this figure when answering  
Figure 14.1: BAA and 10-Year Bonds, 2006-2010 
 (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-In Figure 14.1 above, the 10-year bond yield is considered ________, while the BAA bond yield represents ________.

Quizplus · Accepted Answer

The 10-year bond yield is considered a risk-free interest rate, as it reflects the return investors can earn on a government-backed security. The BAA bond yield represents a risky interest rate, as it reflects the return investors can earn on a corporate bond with a credit rating of BAA (which is considered medium-grade, or "junk" status).

The Following Figure Shows the BAA Corporate and 10-Year Treasury