Assume That Interest Rates on 20-Year Treasury and Corporate Bonds

question 42

Multiple Choice

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:
T-bond = 7.72% A = 9.64%
AAA = 8.72% BBB = 10.18%
The differences in rates among these issues were most probably caused primarily by:

• A) Real risk-free rate differences.
• B) Tax effects.
• C) Default and liquidity risk differences.
• D) Maturity risk differences.
• E) Inflation differences.

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