Indicate which bond in the following pairs of bonds is likely to bear the higher interest...

Indicate which bond in the following pairs of bonds is likely to bear the higher interest rate (yield) and state why. If there is no general reason for a difference indicate that they would be the same.

A. A corporate bond rated Aaa or a municipal bond rated Aaa

B. A municipal bond rated Baa or a municipal bond rated Aa

C. A general obligation bond issued by a city or a revenue bond issued by a city

D. A general obligation bond rated Aa issued by a city or a general obligation bond rated Aa issued by a county

E. A municipal bond (term) with maturity in five years or a municipal bond (term) with maturity in twenty years

Expert Solution

A-	A corporate bond rated Aaa or a municipal bond rated Aaa	High interest rate on corporate bonds due to high degree of default risk and low in case of municipal bonds due to low risk of default
B-	A municipal bond rated Baa or a municipal bond rated Aa	High interest rate on corporate bonds rated BAA due to high degree of default risk and low in case of municipal bonds due to low risk of default
C-	A general obligation bond issued by a city or a revenue bond issued by a city	revenue bonds issued by higher interest rate in comparison to general obligation bond because revenue are generated only from the projects and amount would be refunded while in case of general obligation bond there is surety of payment of principal
D-	A general obligation bond rated Aa issued by a city or a general obligation bond rated Aa issued by a county	A general obligation bonds rate Aa issued by a county offer higher rate of yield as it results in higher degree of risk
E-	A municipal bond (term) with maturity in five years or a municipal bond (term) with maturity in twenty years	Bond with higher maturity will offer higher interest rate as high risk is involved as maturity increases

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