A Treasury Bond Due in One Year Has a Yield

question 30

Multiple Choice

A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in five years has a yield of 5.6%.A bond issued by Lucent Technologies due in five years has a yield of 8.9%; a bond issued by Exxon due in one year has a yield of 6.2%.The default risk premiums on the bonds issued by Exxon and Lucent Technologies, respectively, are

• A)1.6% and 3.3%.
• B)0.5% and 0.7%.
• C)3.3% and 1.6%.
• D)0.7% and 0.5%.
• E)None of the options

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Definitions:

Indexed Annuity

An annuity that earns interest or provides benefits that are linked to the performance of a specified index of the stock market.

Compounded Quarterly

A method where interest is added to the principal amount of an investment or loan at the end of every three months, leading to interest earning interest.

Deferred Annuity

A financial product that delays payments of income, installments, or a series of payments until a specified future date.

Ordinary Annuity

A sequence of identical disbursements done at consecutive period ends over a predefined duration.