Assume that the following bonds have the same maturity dates. The following bonds have the stated yields
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Question:
Assume that the following bonds have the same maturity dates. The following bonds have the stated yields to maturity:
November 2007:
10-year Treasury Bond: 4.00%
AAA Corporate Bonds: 6.12%
BBB Corporate Bonds: 9.21%
November 2009:
10-year Treasury Bond: 4.31%
AAA Corporate Bonds: 5.19%
BBB Corporate Bonds: 6.32%
(a)What is the risk premium on the AAA corporate bond in November of 2007?
(b)What is the risk premium on the BBB corporate bond in November of 2007?
(c)What is the risk premium on the AAA corporate bond in November of 2009?
(d)What is the risk premium on the BBB corporate bond in November of 2009?
(e)At what point of time (2007 or 2009) does the market perceive a higher risk of corporate default?
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