Why Are the Interest Rates of Treasury Bonds Less Than

question 25

Multiple Choice

Why are the interest rates of Treasury bonds less than the interest rates of equivalent corporate bonds?

• A)Treasury bonds are widely regarded to be risk-free.
• B)Treasury bonds are generally used to determine interest rates.
• C)The Australian government has a high credit spread.
• D)There is significant risk that the Australian government will default.

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Definitions:

S&P/TSX Composite Index

A market index representing the performance of the Canadian stock market, compiled by the Standard & Poor’s company.

Diversifiable Risks

Risks associated with individual investments that can be reduced or eliminated through portfolio diversification.

Individual Firm

An independently owned and operated company that is limited in size and in revenue depending on the industry.

Industry

Refers to a group of companies that are related based on their primary business activities.