(4.) Evaluate the following claims as either True , False , or Uncertain . Be sure to briefly exp...
(4.)
Evaluate the following claims as either
True
,
False
, or
Uncertain
. Be sure to briefly explain your answers.
(a.)
“Assume you have a collection of municipal bonds and corporate bonds of similar maturities and default risk (i.e.
both sets of bonds carry a rating of “AA+” from Standard and Poor’s). Accordingly, a yield curve formed from municipal
bonds will be higher than a yield curve formed from the corporate bonds because of their tax-advantaged status.”
(b.)
“Given their low interest rate risk, money market securities tend to have very low yields.”
Homework Answers
a: False
Corporate bonds carry more risk and offer higher yield. Hence the yield curve of corporate bonds will be higher than municipal bonds
b: True
Money market securities have lower risk than stock or corporate debt. Hence they offer lower yields.
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