Question

During​ 2008, the difference in yield​ (the yield spread​) between​ 3-month AA-rated financial commercial paper and​ 3-month AA-rated nonfinancial commercial paper steadily increased from its usual level of close to​ zero, spiking to over a full percentage point at its peak in October 2008. Which of the following explains this sudden​ increase?

A. Increased yield spreads tend to occur because of the inefficient nature of nonfinancial commercial paper when economic instability is present.

B. The increase in the yield spread was due to government efforts to ease the debt burden for financial companies during the financial crisis.

C. The increase in the yield spread was a result of the decrease in demand for financial commercial paper due to the uncertainty and soundness of financial companies and banks.

D. The increase in the yield spread was caused by an increase in the supply of financial commercial paper to fund future real estate investments.

2) Yields for the following​ 10-year corporate bonds are listed in the table below along with their​ Moody's bond rating. ​10-year Corporate​ Bond, Reference Number ​Moody's Rating Yield ​(% annually) 1 C ​8.50% 2 Baa ​7.45% 3 Ca ​7.75% 4 A ​4.60% -

If the yield on a​ 10-year T-note is​ 4.00%, what is the risk premium LOADING... on bond ​#4​? The risk premium is . _____. ​(Round your response to two decimal places.​)

What is a likely range of yields for a​ 10-year corporate bond with a Ba​ rating? 

  The minimum yield is _____​% and the maximum yield is ____​%. ​(Round your responses to two decimal places.​)

Answer 1

1)Option C here the yield spread increasing because of the uncertainity of the performance of finance companies incompared with safer nonfinancial paper when the economy is not doing good
2)Risk premium= yield of bond-risk free rate
=4.6%-4%=0.60%
BA rating lies between Baa and Ca
it is 7.45% and 7.75%