A Treasury Bond Due in One Year Has a Yield

question 3

Multiple Choice

A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%.A bond issued by Xerox due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%.The default risk premiums on the bonds issued by Exxon and Xerox,respectively,are

• A)1.0% and 1.2%
• B)0.5% and .7%
• C)1.2% and 1.0%
• D)0.7% and 0.5%
• E)none of the above

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Definitions:

Growth Model

A mathematical representation used to describe how a quantity changes over time.

Population

The whole number of people or inhabitants in a country or region.

Compounded Continuously

A method of calculating interest where the interest amount is constantly added to the principal, leading to exponential growth.

Annual Interest Rate

The percentage of a sum of money charged for its use per year.