Yield Spread between Garjun Technologies and U.S. Treasuries

A

To determine the most accurate description of the yield spread between Garjun Technologies' corporate bonds and U.S. Treasuries, we need to calculate the yield spread and understand its meaning.

The yield spread represents the additional yield an investor can earn by investing in a riskier asset, such as corporate bonds, compared to a safer asset, such as U.S. Treasuries. In this case, the yield spread is the difference between the yield on Garjun Technologies' bonds and the yield on equivalent maturity U.S. Treasuries.

Given that Garjun Technologies' bonds currently yield 8.75% and the equivalent maturity U.S. Treasury yields 5.25%, we can calculate the yield spread as follows:

Yield Spread = Garjun Technologies' Yield - U.S. Treasury Yield = 8.75% - 5.25% = 3.50%

Therefore, the yield spread between Garjun Technologies and U.S. Treasuries is 3.50%.

Let's evaluate the provided answer choices:

A. The yield ratio is 1.67. This option is incorrect because there is no mention of a yield ratio in the question, and the calculated yield spread is not 1.67.

B. The absolute yield spread is 67%. This option is incorrect because the yield spread is expressed as a percentage difference, not as a percentage of the U.S. Treasury yield. The calculated yield spread is 3.50%.

C. The relative yield spread is 350 basis points. This option is correct. The yield spread is commonly expressed in basis points (bps), which represent one-hundredth of a percentage point. Therefore, a yield spread of 3.50% can be expressed as 350 basis points.

The most accurate description of the yield spread between Garjun Technologies and U.S. Treasuries is that the relative yield spread is 350 basis points (option C).