A Treasury Bond Due in One Year Has a Yield

question 14

Multiple Choice

A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in 5 years has a yield of 6.2%. A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%. The default risk premiums on the bonds issued by Shell and Ford, respectively, are

• A) 1.0% and 1.2%.
• B) 0.7% and 1.5%.
• C) 1.2% and 1.0%.
• D) 0.8% and 1.3%.
• E) None of the options are correct.

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Definitions:

Gains from Trade

The increase in welfare or benefit that countries or individuals obtain by engaging in voluntary trade with each other, enabling more efficient allocation of resources.

Specialization

The process whereby individuals, businesses, or countries focus on producing a limited range of goods or services to gain greater efficiency and productivity.

Price of a Dollar

A term not commonly used in economics or finance, potentially confusing but might refer to the value of the US dollar in terms of foreign currency exchange rates.

Trade Flow

Refers to the movement of goods and services between countries, indicating the import and export activities.