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Commercial Paper -Financial 2.43% 1-month 10 year investment grade 5.34 % corporate bonds Treasury instruments.(bills, notes, and bonds 1 Year Treasury 2.53 % 10-year Treasury

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Commercial Paper -Financial 2.43% 1-month 10 year investment grade 5.34 % corporate bonds Treasury instruments.(bills, notes, and bonds 1 Year Treasury 2.53 % 10-year Treasury 2.62% 10-year inflation-indexed Treasury 0.79 % bond (TIPS) The table above presents a snap shot of market rates from a trading day earlier this year. Consider the characteristics of debt instruments that cause their interest rates to vary. Why do yields on 10-year investment grade corporate bonds differ from yields on 10-year inflation-indexed Treasury bond (TIPS)? Identify at least three characteristics that cause this interest rate differential to exist and explain how each causes the interest rate differential between the two debt instruments to widen or narrow

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