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

question 2

Multiple Choice

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:

The differences in rates among these issues were most probably caused primarily by:

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

---

Definitions:

Lease Payments

Periodic payments made by a lessee to a lessor for the use of an asset over a specified time period.

CCA Class

A category used in Canadian tax law that determines the depreciation rate for tax purposes on tangible capital assets.

Incremental Cash Flow

The additional cash flow a company generates from undertaking a new project, highlighting the project's potential profitability.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset over a specified period as per a lease agreement.