LOS h: Describe the characteristics and motivation for the various types of debt issued by corporations (including corporate bonds, medium-term notes, structured notes, commercial paper, negotiable CDs, and bankers acceptances).
Which of the following statements concerning taxable bonds is most accurate?
A) |
Treasuries have the lowest yields, followed by corporates, then by agencies, which provide the highest returns. | |
B) |
Treasuries have the lowest yields, followed by agencies, then by corporates, which provide the highest returns. | |
C) |
Corporates have the lowest yields, followed by Treasuries, then by corporates, which provide the highest returns. | |
The difference in yields is largely due to the default risk premium. Treasuries are considered to be default-risk free, while corporate bonds have the highest default risk. |