Which of the following is the best description of the spread premium puzzle:

Which of the following is the best description of the spread premium puzzle:
A . The spread premium puzzle refers to observed default rates being much less than implied default rates, leading to lower credit bonds being relatively cheap when compared to their actual default probabilities
B . The spread premium puzzle refers to dollar denominated non-US sovereign bonds being priced a at significant discount to other similar USD denominated assets
C . The spread premium puzzle refers to AAA corporate bonds being priced at almost the same prices as equivalent treasury bonds without offering the same liquidity or guarantee as treasury bonds
D . The spread premium puzzle refers to the moral hazard implicit in the monoline insurance market

View Answer

Answer: A

Explanation:

Choice ‘a’ is the correct answer. The other choices represent non-sensical statements.