1. Reasons debt securities have varying yields Debt securities offer varying yields due to characteristics such as credit risk, liquidity, tax status, and term to maturity. For each of the following scenarios, determine which security will have a higher yield and will be more popular to investors seeking a high return on their investment. Assume that other than the differences in characteristics mentioned, the securities are identical. Scenario 1 Security 1: A Treasury bond with a 6-year maturity that offers an annualized yield of 6 percent to maturity. Security 2: A corporate bond with a 6-year maturity that offers an annualized yield that reflects a 3 percentage point credit risk premium. Security 1 Security 2 Scenario 2 Security 1: A Treasury bond that has a very active secondary market. Security 2: A debt security that has a long-term maturity and that does not have a very active secondary market. Security 1 Security 2 Scenario 3 Security 1: A taxable security that offers a before-tax yield of 6.6 percent, sold to an investor with a marginal tax rate of 20 percent. Security 2: A tax-exempt security with a yield of 6 percent. Security 1 Security 2 Scenario 4