Why should corporate bond pay more than a U.S. T note and less than a preferred...
Why should corporate bond pay more than a U.S. T note and less than a preferred stock?
Homework Answers
A US T note is issued by the Fed, and is guaranteed by the Government of the US. Hence, it is virtually risk free. Therefore it will have a very low yield.
Corporate bonds have some risk of default since they are issued by corporates, and not the Fed. Due to this, they will have higher yields than US T notes
Preferred stocks have higher risk than corporate bonds, but also have more upside and price volatility. Hence, the yields on preferred stock will be higher than yields of corporate bonds
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