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

question 15

Multiple Choice

Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72% AAA = 8.72% A = 9.64% BBB = 10.18%
The differences in these rates were probably caused primarily by:

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

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Definitions:

Breakeven Point

The point at which total cost and total revenue are equal, meaning a business is neither making a profit nor a loss.

Average Variable Costs

The total variable costs of production divided by the quantity of output produced, reflecting costs that change with production levels.

Desired Profit

The target amount of money a business aims to earn over a certain period.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.