Which is INCORRECT regarding corporate bonds? A. Corporate bonds typically have higher yields compared to treasury...

Which is INCORRECT regarding corporate bonds?
A. Corporate bonds typically have higher yields compared to treasury bonds with the same maturity.
B. The majority of corporate bonds are callable, especially the high yield ones.
C. Corporate bonds are traded on the dealers market, and are generally less liquid than stocks.
D. The higher the credit rating, the higher the credit spread.

Solutions

Expert Solution

Credit rating indicates the degree of risk involved. The higher the credit rating, the lower the riisk and hence , the lower the risk premium (credit spread)

The following statement given is incorrect:

"The higher the credit rating, the higher the credit spread."

The answer is option D

(Treasury bonds are risk free. Corporate bonds carry risk and hence risk premium is added.Therefore, these bonds will have higher yields compared to Treasury bonds. Other statements are also correct).

jeff jeffy answered 2 years ago

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