If the Interest Rate on a Ten-Year Bond Issued by GM

question 69

Multiple Choice

If the interest rate on a ten-year bond issued by GM is 7.8% while the interest rate on a ten-year treasury bond is 4.6%, the risk premium is

• A)1.70%.
• B)3.2%.
• C)-3.2%.
• D)12.4%.

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Definitions:

Par Preferred Stock

A class of preferred shares issued at a designated face value, often affecting aspects of dividend payments and company equity structure.

Cash

Liquid funds available for use in the form of currency or bank balances.

Treasury Stock

Company-released shares that have been bought back, consequently lowering the overall available shares for trading.

Par Common Stock

The face value of a share of common stock as specified in the corporate charter, with no bearing on the market value.