Final answer:
The student's question relates to the yields of bonds issued by Boeing, Northrop Grumman, and comparing these to general corporate and government bonds. Boeing's AA-rated bonds are low risk, while Northrop Grumman's BB-rated bonds carry higher risk and potentially higher yield. Corporate bonds yield more than government bonds due to higher risk, but diverse bond portfolios can mitigate this risk.
Step-by-step explanation:
The question pertains to understanding the characteristics and differences of bond types, which include bonds issued by Boeing, Northrop Grumman, a generic corporate bond, and a government bond. Based on the provided information, bonds issued by entities like Boeing and Northrop Grumman have different levels of risk as reflected in their credit ratings provided by Moody's. A Boeing bond rated AA is considered to have a very low risk of default whereas a Northrop Grumman bond rated BB is considered riskier. Generally, the yield or interest rate paid on these corporate bonds is higher than that of government bonds due to the greater risk involved.
Corporate bonds offer higher yields compared to government bonds because companies are riskier borrowers. Government bonds, specifically 10-year Treasury notes, are considered low risk and therefore offer lower yields than corporate bonds. However, yields on both types of bonds usually fluctuate together. The risk associated with corporate bonds can be managed by diversification, which involves investing in a range of companies so that the impact of any single company's default is minimized.