Question
An investor is considering investing in either a Treasury bond with a yield of 2.4% or in a AA-rated Corporate bond with a yield of
An investor is considering investing in either a Treasury bond with a yield of 2.4% or in a AA-rated Corporate bond with a yield of 2.8%. Both bonds have the same maturity date and the same coupon payment. Why would these two bonds be offered with different interest rates?
A) Markets are inefficient and investors don't bother finding the best deals | ||
B) The Corporate bond, while high-quality, has some credit risk that the Government bond does not have | ||
C) The Treasury bond has a tax benefit that investors compensate for | ||
D) Most likely, the corporate bond has less liquidity than the treasury bond, and therefore require a higher yield |
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