Which of the following securities is likely to have the highest yield to maturity?
A)A corporate bond with a Baa rating
B)A corporate bond with AAA rating
C)A government bond exempted from federal income tax
D)A certificate of deposit with a three months to maturity

Question

​Which of the following securities is likely to have the highest yield to maturity?
A)​A corporate bond with a Baa rating
B)​A corporate bond with AAA rating
C)​A government bond exempted from federal income tax
D)​A certificate of deposit with a three months to maturity

Quizplus · Accepted Answer

Corporate bonds with a Baa rating are considered lower-grade compared to AAA-rated bonds, implying higher risk. To compensate investors for this increased risk, Baa-rated bonds typically offer higher yields to maturity than AAA-rated corporate bonds, government bonds (especially those exempted from federal income tax which generally have lower yields due to their tax advantages), and short-term certificates of deposit, which usually offer lower yields due to their short maturity and lower risk.

​Which of the Following Securities Is Likely to Have the Highest

Which of the Following Securities Is Likely to Have the Highest