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

question 24

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%
What were the differences in rates among these issues most probably caused by?

• A) real risk-free rate differences
• B) default risk differences
• C) maturity risk differences
• D) inflation differences

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