Compare a 5-year Treasury note with a coupon rate of one percent with a 10-year corporate bond with a coupon rate of 4.5 percent in terms of their exposure to default risk, reinvestment risk, interest rate risk, and inflation risk.

Compare a 5-year Treasury note with a coupon rate of one percent with a 10-year corporate bond with a coupon rate of 4.5 percent in terms of their exposure to default risk, reinvestment risk, interest rate risk, and inflation risk.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 2EP

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Compare a 5-year Treasury note with a coupon rate of one percent with a 10-year corporate bond
with a coupon rate of 4.5 percent in terms of their exposure to default risk, reinvestment risk, interest
rate risk, and inflation risk.

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