Discuss whether the following statement is true or false:
A GNMA (mortgage pool)security with a 20-year maturity should sell at a lower yield to maturity than a 20-year corporate bond,because the interest and principal of the GNMA security are government insured.

Question

Quizplus · Accepted Answer

Yields on corporate bonds are typically higher than those on GNMA security to compensate for the credit risk.A corporate may or may not honor its obligation to pay interest and principal,whereas,a GNMA security has the complete backing by the government of United States.Additionally,the interest payments on corporate bonds are taxed at the state level whereas interest payments on government bonds are not.

Discuss Whether the Following Statement Is True or False