The Wall Street Journal Reports That the Current Rate on 10-Year

question 84

Multiple Choice

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.25 percent, on 20-year Treasury bonds is 7.95 percent, and on a 20-year corporate bond is 10.75 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, calculate the current rate on a 10-year corporate bond.

• A) 9.05 percent
• B) 6.15 percent
• C) 7.60 percent
• D) 8.70 percent

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Definitions:

Role Playing

A method or activity in which individuals assume roles and act them out in a scenario, often used for training, assessment, or therapeutic purposes.

Attitudes

A learned predisposition to respond in a consistently favorable or unfavorable manner with respect to a given object, person, or issue.

Respond

To react to something by taking a particular course of action.

Dissonance

The psychological discomfort felt when holding two or more conflicting cognitions (ideas, beliefs, values, or emotional reactions).