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Interest rate spread Suppose that a 3-year Treasury bond pays an annual rate of return of 1
Interest rate spread Suppose that a 3-year Treasury bond pays an annual rate of return of 1.3%, and a 3-year bond of the fictional company Risky Investment Inc. pays an annual rate of return of 6.7%. The risk premium on the Risky Investment bond is percentage points. the Consider a decrease in the annual rate of return on the Risky Investment bond from 6.7 percent to 5.5 percent. Such a change would interest rate spread on the Risky Investment bond over Treasuries to Which of the following explains the decrease in the annual rate of return on the Risky Investment bond? The expected default rate on the Risky Investment bond has decreased. The expected default rate on the Treasury bond has decreased. The expected default rate on the Treasury bond has increased. The expected default rate on the Risky Investment bond has increased.
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