Interpreting the Structure of Interest Rates a. Explaining Yield Differentials Using the most recent issue of The Wall Street Journal, review the yields for the following securities: If credit (default) risk is the only reason for the yield differentials, then what is the default risk premium on the corporate high-quality bonds? On the medium-quality bonds? During a recent recession, high-quality corporate bonds offered a yield of 0.8 percent above Treasury bonds while medium-quality bonds offered a yield of about 3.1 percent above Treasury bonds. How do these yield differentials compare to the differentials today? Explain the reason for any change. Using the information in the previous table, complete the following table. In Column 2, indicate the before-tax yield necessary to achieve the existing after-tax yield of tax-exempt bonds. In Column 3, answer this question: If the tax-exempt bonds have the same risk and other features as high-quality corporate bonds, which type of bond is preferable for investors in each tax bracket? b. Examining Recent Adjustments in Credit Risk Using the most recent issue of The Wall Street Journal, review the corporate debt section showing the high-yield issue with the biggest price decrease. Why do you think there was such a large decrease in price? How does this decrease in price affect the expected yield for any investors who buy bonds now? c. Determining and Interpreting Todays Term Structure Using the most recent issue of The Wall Street Journal, review the yield curve to deter- mine the approximate yields for the following maturities:Assuming that the differences in these yields are due solely to interest rate expectations, determine the one-year forward rate as of one year from now and the one-year forward rate as of two years from now. d. The Wall Street Journal provides a Treasury Yield Curve. Use this curve to describe the markets expec- tations about future interest rates. If a liquidity pre- mium exists, how would this affect your perception of the markets expectations?