Question

Macy's bonds are currently rated BBB-. They have a yield of 8.5%. Treasury bonds with familiar maturity have a yield of approximately 1%. Which of the following are true about
Macy's Bonds?

A) Your expected return on the bond is approximately 1%

B) Your expected return on the bond is more than 1% but less than 8.5%

C) Your expected return on the bond is approximately 8.5%

D) Your expected return on the bond is more than 8.5%

Answer 1

The correct answer is Option C

The Yield is the annual return that an investor would expect if he holds the bond. while the yield on treasury bonds represent the risk free return than an invesor would get.

The Yield on corporate bond is higher because the rating of the bond is Lower which is -BBB, so the company would have to give higher return to compensate the risk associated with the bond. Therefore, The Yield on Macy Bond is 8.5% approximately. There will be no effect of treasury bond rate.