Question: Toyota bonds are currently rated AA, and Ford bonds are rated BB. Suppose the price of a $1,000 one-year Toyota bond is $970.
a. What is the rate of return on the one-year Toyota bond?
b. The price of a $1,000 one-year Ford bond must be:
i. less than $970.
ii. greater than $970.
iii. $970.
iv. There is insufficient information to answer this question.
c. The rate of return of a $1,000 one-year Ford bond must be:
i. less than the return on the Toyota bond.
ii. greater than the return on the Toyota bond.
iii. the same as the return on the Toyota bond.
iv. There is insufficient information to answer this question.