For the next several questions, assume you are evaluating the following bonds for purchase: Bond A: 5 year US Treasury Note @ 3.25% YTM Bond B: 10 year US Treasury Note @ 3.50% YTM Bond C: 5 year BBB rated Non-Callable Corporate Bond @ 4.85% YTM Bond D: 10 year AA rated Non-Callable Corporate Bond @ 4.35% YTM Bond E: 10 year Agency Callable in 5 years @ 4.40% YTC | 4.75% YTM

The 10 year Callable Agency Bond (Bond E) has a higher YTM than the 10 year AA rated Corporate Bond (Bond D) because the Agency (Bond E) has

a) longer duration (more interest rate risk in rates up).

b) more optionality risk.

c) more credit risk.

8) What is the Spread to Treasury of the BBB rated Non-Callable Corporate Bond (Bond C)?

a) 160 bps

b) 10 bps

c) 135 bps

9) If the credit rating of the 5 year BBB rated Non-Callable Corporate Bond (Bond C) gets upgraded to A, Bond Cs spread will likely _________ and (assuming Treasury Rates remain unchanged) Bond Cs YTM will likely _________.

a) Increase | Increase

b) Decrease | Increase

c) Increase | Decrease

d) Decrease | Decrease