Consider the following securities. They all have the same face value, annual coupon rate and frequency of coupon payments per year. Which one of these
Consider the following securities. They all have the same face value, annual coupon rate and frequency of coupon payments per year. Which one of these would you expect to pay the lowest price at issuance?
- 10-year corporate bond with AAA rating
- 10-year corporate bond with BBB rating
- 10- year Treasury bonds
a.
10- year Treasury bond because it has the lowest default risk and hence should be selling at the cheapest price
b.
10-year corporate bond with BBB rating because it has the highest default risk and hence should be selling at the cheapest price
c.
10-year corporate bond with AAA rating because it has a lower default risk than the bond with BBB rating.
d.
Unable to decide as the implied value of these securities can not be calculated
Clear my choice
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The correct answer is a 10year Treasury bond because it has the lowest default risk and hence should ...See step-by-step solutions with expert insights and AI powered tools for academic success
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