The Yields to Maturity on a Number of One-Year,zero-Coupon Securities

question 120

Multiple Choice

The yields to maturity on a number of one-year,zero-coupon securities are shown in the table above.What is the credit spread on a one-year,zero-coupon corporate bond with an A rating?

• A)4.7%
• B)2%
• C)1.2%
• D)0.4%
• E)0.8%

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Definitions:

Firm-Specific Risk

The risk associated with an individual company, which can be reduced through diversification in investment.

Market Risk

The possibility that investors might incur losses because of elements influencing the general performance of the financial markets.

Informationally Efficient

A market condition where all existing information is completely accounted for in stock prices, thereby eliminating the possibility of consistently securing above-average profits.

Random Walk

A statistical theory suggesting that stock market prices evolve according to a random path, making future movements unpredictable based on past trends.