[Related to the Chapter Opener] In the chapter opener it is mentioned that: "For example, in early 2020, if you wanted to invest in a corporate bond that matured in 2026, you could earn an interest rate of 2.0% on a bond issued by Apple Inc., or you could earn an interest rate of 8.9% on a bond issued by U.S. Steel." The Apple bond was rated Aa1 by Moody's, while the U.S. Steel bond was rated B3. Do these ratings help explain the difference in the yields on the firms' bonds noted in the chapter opener? O A. No, credit ratings do not impact or explain interest rates on bonds, they only reflect interest rate risk in the overall economy. OB. No, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S. Steel bond, yet it has a lower yield. OC. Yes, the ratings indicate that the U.S. Steel bond has a greater default risk than the Apple Inc. bond, therefore a higher yield on this bond makes sense. O D. Yes, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S. Steel bond, therefore a higher yield on this bond makes sense.
[Related to the Chapter Opener] In the chapter opener it is mentioned that: "For example, in early 2020, if you wanted to invest in a corporate bond that matured in 2026, you could earn an interest rate of 2.0% on a bond issued by Apple Inc., or you could earn an interest rate of 8.9% on a bond issued by U.S. Steel." The Apple bond was rated Aa1 by Moody's, while the U.S. Steel bond was rated B3. Do these ratings help explain the difference in the yields on the firms' bonds noted in the chapter opener? O A. No, credit ratings do not impact or explain interest rates on bonds, they only reflect interest rate risk in the overall economy. OB. No, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S. Steel bond, yet it has a lower yield. OC. Yes, the ratings indicate that the U.S. Steel bond has a greater default risk than the Apple Inc. bond, therefore a higher yield on this bond makes sense. O D. Yes, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S. Steel bond, therefore a higher yield on this bond makes sense.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![↑
[Related to the Chapter Opener] In the chapter opener it is mentioned that: "For example, in
early 2020, if you wanted to invest in a corporate bond that matured in 2026, you could earn an
interest rate of 2.0% on a bond issued by Apple Inc., or you could earn an interest rate of 8.9% on
a bond issued by U.S. Steel."
The Apple bond was rated Aa1 by Moody's, while the U.S. Steel bond was rated B3.
Do these ratings help explain the difference in the yields on the firms' bonds noted in the
chapter opener?
A. No, credit ratings do not impact or explain interest rates on bonds, they only reflect
interest rate risk in the overall economy.
B. No, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S.
Steel bond, yet it has a lower yield.
OC. Yes, the ratings indicate that the U.S. Steel bond has a greater default risk than the Apple
Inc. bond, therefore a higher yield on this bond makes sense.
O D. Yes, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S.
Steel bond, therefore a higher yield on this bond makes sense.
...](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcfc246f7-1449-47e5-9de4-d6557af7a010%2F5e9bc58a-1569-4cf7-b6ce-ded44cc95da5%2Fsfn1ay_processed.jpeg&w=3840&q=75)
Transcribed Image Text:↑
[Related to the Chapter Opener] In the chapter opener it is mentioned that: "For example, in
early 2020, if you wanted to invest in a corporate bond that matured in 2026, you could earn an
interest rate of 2.0% on a bond issued by Apple Inc., or you could earn an interest rate of 8.9% on
a bond issued by U.S. Steel."
The Apple bond was rated Aa1 by Moody's, while the U.S. Steel bond was rated B3.
Do these ratings help explain the difference in the yields on the firms' bonds noted in the
chapter opener?
A. No, credit ratings do not impact or explain interest rates on bonds, they only reflect
interest rate risk in the overall economy.
B. No, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S.
Steel bond, yet it has a lower yield.
OC. Yes, the ratings indicate that the U.S. Steel bond has a greater default risk than the Apple
Inc. bond, therefore a higher yield on this bond makes sense.
O D. Yes, the ratings indicate that the Apple Inc. bond has a greater default risk than the U.S.
Steel bond, therefore a higher yield on this bond makes sense.
...
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