Assume that the real risk-free rate is r* = 1% and the average expected inflation rate is 3% for each future year. The default risk premium and liquidity premium for Bond X are each 1%, and the applicable maturity risk premium is 2%. Which of the following statement is correct? A. Bond X is more likely a Treasury bond than a corporate bond. B. Bond X is more likely to have a 3-month maturity than a 20-year maturity. C. Bond X is more likely to have a 20-year maturity than a 3-month maturity. D. both a and b are correct. E. both a and d are correct.
Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72%, A = 9.64%, AAA = 8.72%, BBB = 10.18%. The differences in rates among these issues were caused primarily by A. Tax effects. B. Default risk differences. C. Maturity risk differences. D. Inflation differences. E. Real risk-free rate differences.