Question

The averope yield on AA+ 30-year T-bond is 7.643. The averege yield on 30 -yeor AA-corporate bonds is 9.615 . What is the yield sprood belween AA+ Tibonds and AAcorporate bonds 101 and 104 \[ \begin{a

Answer 1

The yield spread between AA+ T-bonds and AA-corporate bonds is calculated by subtracting the yield on the T-bonds from the yield on the corporate bonds, resulting in a spread of 1.972 percentage points.

Step-by-step explanation:

The yield spread between two bonds is the difference in their respective yield rates. In this case, the average yield on AA+ 30-year Treasury bonds is 7.643% and the average yield on 30-year AA-corporate bonds is 9.615%. To calculate the yield spread, you subtract the yield on the Treasury bonds from the yield on the corporate bonds. Therefore, the yield spread is:

9.615% - 7.643% = 1.972%

The yield spread between AA+ T-bonds and AA-corporate bonds is 1.972 percentage points. This yield spread represents the additional return that investors demand for taking on the higher risk associated with corporate bonds compared to Treasury bonds. T-bonds are considered safer because they are backed by the full faith and credit of the U.S. government.