In a Recent Year,interest Rates on Long-Term Government and Corporate

question 22

Multiple Choice

In a recent year,interest rates on long-term government and corporate bonds were as follows:
T-bond= 7.72%
A= 9.64%
AAA= 8.72%
BBB= 10.18%
The differences in rates among these issues were caused primarily by

• A) Tax effects.
• B) Default risk differences.
• C) Maturity risk differences.
• D) Inflation differences.
• E) Answers b and d are both correct.

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Definitions:

Tax Avoidance

The legal practice of structuring financial affairs to minimize tax liabilities without violating the law.

CRA

The Canada Revenue Agency (CRA) is a governmental agency that administers tax laws for the Canadian federal government and for most provinces and territories.

Financing Decision

The decision-making process regarding the best way to acquire necessary funds to invest in long-term assets.

Investment Decision

The process of evaluating and selecting from among available investment opportunities, considering financial resources and risk tolerance.