Final answer:
Corporate bonds offer the highest yield to maturity compared to Government Bonds, Municipal Bonds, and Savings Bonds because they carry a higher risk of default and thus pay a higher interest rate to attract investors. Option a
Step-by-step explanation:
The question asks which type of bond offers the highest yield to maturity given a 365-day term. Based on the provided information in Figure 17.5, out of Government Bonds, Municipal Bonds, Savings Bonds, and Corporate Bonds, corporate bonds generally offer the highest yield. This is because corporate entities are considered riskier than the federal government, so to attract investors, corporate bonds pay a higher interest rate, compensating for the increased risk of default. Figures cited suggest that corporate bonds have higher returns to make up for this greater risk when compared to the virtually risk-free Government Bonds. Option a.
Government Bonds, officially referred to as "notes," typically offer higher returns than bank accounts but lower yields than corporate bonds. Municipal Bonds and Savings Bonds are generally suited for different investment purposes and tax treatments, and their yields can vary widely but typically are lower than corporate bonds.