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Question:

Consider the following statements:
Statement 1: Given the term to maturity, a corporate bond cannot possibly offer a lower yield than a U.S. Treasury.
Statement 2: U.S. Treasures are free of credit risk, but not risk‐free.
Which of the following is most likely?

A Only Statement 2 is correct.
Explaination

• Given the term to maturity, a putable corporate bond may actually offer a lower yield than a U.S. Treasury.
• Statement 2 is correct, as U.S. Treasures have an element of reinvestment risk among other risks.