Assume you are looking at the following bonds for purchase:

Bond A: 5 year US Treasury Note @ 3.25% YTM

Bond B: 10 year US Treasury Note @ 3.50% YTM

Bond C: 5 year BBB rated Non-Callable Corporate Bond @ 4.85% YTM

Bond D: 10 year AA rated Non-Callable Corporate Bond @ 4.35% YTM

Bond E: 10 year Agency Callable in 5 years @ 4.40% YTC | 4.75% YTM

The 10 year Callable Agency Bond (Bond E) has a higher YTM than the 10 year AA rated Corporate Bond (Bond D) because the Agency (Bond E) has...

a) longer duration (more interest rate risk in rates up).

b) more optionality risk.

c) more credit risk.

Answer rating: 100% (QA)

callable bonds mean higher risk for investors If the bonds are ... View the full answer