Suppose 10-Year T-Bonds Have a Yield of 5

question 75

Multiple Choice

Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 7.10%.Also,corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds,and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%.What is the default risk premium on corporate bonds?

• A) 1.64%
• B) 1.55%
• C) 1.19%
• D) 1.35%
• E) 1.38%

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Definitions:

Leasing

A contractual arrangement where one party allows another to use an asset for a specified time in return for periodic payments.

Buying

The action of purchasing goods, services, or financial assets.

Corporate Tax Rate

The corporate tax rate is the percentage of a corporation's income that it pays in taxes to the government.

CCA Class 10

A category under the Canadian Capital Cost Allowance that pertains to specific types of property with a depreciation rate set by the tax code.