Question

At any given time, how would the yield curve facing a AAA rated company compare with...

At any given time, how would the yield curve facing a AAA rated company compare with the yield curve for U.S. treasury securities? At any given time, how would the yield curve facing a BB rated company compare with the yield curve for U.S. treasury securities? Draw a graph to illustrate your answer  

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Answer #1

At any time yield curve of AAA rated security will lie above the US treasury yield curve as US treasury are considered as risk free investment, therefore high premium represents corporate risk premium on AAA rated companies.

On the other hand, yield curve of BB rated companies will lie above yield curve of AAA rated companies as there are high risk of default associated with them therefore high premiums represents those risk premium.

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